Advance to the Finance Minister
What is an Advance to the Finance Minister?
The Advance to the Finance Minister (AFM) is a provision in the annual Appropriation Acts which enables the Minister for Finance and Deregulation (Finance Minister) to provide additional urgently needed appropriation to agencies for expenditure in the current year1. The Finance Minister may only agree to issuing an AFM if satisfied that there is an urgent need for expenditure that is either not provided for or has been insufficiently provided for in the existing appropriations of the agency. The Finance Minister provides the additional appropriation by means of a determination.
Before issuing a determination to increase an agency’s appropriation item, the Finance Minister must be satisfied that the legislative criteria set out in the annual Appropriation Acts are met. The legislative criteria are generally worded along the following lines:
- Amounts can be issued under the AFM if the Finance Minister is satisfied that:
- there is an urgent need for expenditure, in the current year, that is not provided for, or is insufficiently provided for, in the Schedules; and
- the expenditure is not provided for, or is insufficiently provided for, in the Schedules:
- because of an erroneous omission or understatement; or
- because the additional expenditure was unforeseen until after the last day on which it was practicable to provide for it in the Appropriation Bills before those Bills were introduced into the House of Representatives.
- The Appropriation Acts have effect as if the Schedules were amended, in accordance with a determination of the Finance Minister, to make provision for so much (if any) of the expenditure as the Finance Minister determines.
The amounts that can be issued under the AFM provisions are limited to amounts identified in the annual Appropriation Acts. Advances under Appropriation Act No. 1 are limited to $295 million, whilst advances under Appropriation Act No. 2 are limited to $380 million.
Where these limits are close to being exhausted, or are likely to be exhausted, provision will be made in the Additional Estimates Appropriation Acts for these limits to be restored to the original amounts, irrespective of amounts that had been issued before the commencement of these Acts. This will ensure that there are sufficient amounts within the AFM for the remainder of the financial year.
If the Additional Estimates Bills provide for expenditure, and amounts are issued under the AFM provisions prior to the commencement of the Bills (ie. upon receiving Royal Assent) for the same expenditure, the amounts appropriated in the Acts for this expenditure will be reduced by the amounts advanced. This will prevent appropriations for the same expenditure being provided from both the AFM and the Additional Estimates Appropriation Acts.
Appropriation Items Able to be Amended
The schedules to the annual Appropriation Acts provide appropriations for specific items. Within Appropriation Act (No. 1), these items are defined as:
- departmental item
- administered item
- CAC Act body payment item
Within Appropriation Act (No. 2), these items are defined as:
- administered item
- State, ACT, NT and local government item
- administered assets and liabilities item
- other departmental item
- CAC Act body payment item
The Finance Minister may make a determination to amend the schedules for any of the above appropriation items. Applications for an AFM in relation to a “CAC Act body payment item” must be made by the relevant portfolio department rather than the CAC Act body to which it relates. This is in recognition that CAC Act bodies are legally and financially separate from the Commonwealth, with appropriation funding being received via payments from the relevant portfolio department.
Analysis of the Legislative Criteria
An analysis of each of the criteria is provided below.
1. Urgent need for expenditure
In this context, “urgent” is not a legal specific term. In interpreting whether additional expenditure is urgent one can apply ordinary English usage to the term. Generally, for there to be an urgent need for expenditure in the current year, an agency must have exhausted, or be close to exhausting, all available appropriation under the relevant item.
- Urgent need” means there is a ‘pressing or compelling’ need to make a payment of money before the end of the financial year that cannot be delayed until the passing of the next annual Appropriation Bills.
- Expenditure” means making cash payments.
- Current year” refers to the financial year ending on 30 June as defined in the relevant Appropriation Act.
- Close to exhausting” means that an agency expects to exhaust its available appropriation within two weeks.
- Available appropriation” means:
- unspent amounts available from all the relevant annual Appropriation Acts for the item, held within either an agency’s bank account(s) or the Official Public Account.
- amounts that have been quarantined within the Appropriations and Cash Management (ACM) module of the Central Budget Management System (CBMS), eg. declared savings, movement of administered funds into later years;
- relevant receipts of the kind prescribed by the Financial Management and Accountability Regulations 1997 made under section 31 of the Financial Management and Accountability Act 1997 (FMA Act); and
- relevant appropriation amounts transferred under section 32 of the FMA Act following a transfer of function.
- Appropriation amounts mean:
- Departmental operating items – which are appropriated as a single amount for each agency, with splits across agency outcomes being notional only;
- Administered operating items – which are appropriated separately for each agency outcome, specifying how much can be spent for the purpose of each outcome; and
- Non-operating items – which are appropriated as a single amount for each agency.
Where Additional Estimates or supplementary appropriation Bills provide for expenditure, and payment of this expenditure is required prior to the anticipated commencement of these bills, agencies should take care in determining the amounts sought from the AFM. An AFM will not be issued for amounts that have been accrued and require payment at a later point in time when there will be sufficient appropriation available.
Some examples of where an urgent need for expenditure could be demonstrated include:
- insufficient appropriations are available to make grant payments or settle accounts that are either on hand or expected to be received (taking into account due dates for payment); and
- insufficient appropriations are available to enable the payment of salaries/wages.
Applications for an AFM are to be accompanied by a schedule of payments indicating the timing of the additional expenditure. Agencies should consider including other supporting documentation as appropriate in order to support the request for additional appropriation.
ACM should reflect what an agency has recorded in its own accounts and records regarding the status of appropriations. Prior to submitting an application for an AFM, agencies must check ACM to confirm the balance of unspent appropriations.
Expenditure can be separated into two different categories; either expenditure that is ‘not provided for’ or expenditure that is ‘insufficiently provided for’. In applying for an AFM, agencies must be able to explain why the expenditure they believe is required in the current year was either not provided for, or was insufficiently provided for in the most recent annual appropriation Acts. The legislative provision for the AFM provides the criteria that the requesting agency must address in their application.
2.1 Not provided for
The phrase ‘not provided for’ means that a new type of expenditure is to be made, which was not included in the most recent Appropriation Bills introduced to Parliament. For example, an agency or outcome might not have been included or no equity injections provided.
2.2 Insufficiently provided for
The phrase ‘insufficiently provided for’, on the other hand, applies when an existing appropriation amount for a particular purpose exists but that the amount is insufficient. For example, an insufficient amount was appropriated for an outcome or equity injection.
2.3 Reasons why additional expenditure was either ‘not provided for’ or was ‘insufficiently provided for’
- Erroneous omission or understatement
- Erroneous omission: as the term suggests, this criterion covers situations where amounts have been omitted in error. Some examples are where:
- an error was made resulting in provision for the expenditure not being included in the most recent Appropriation Bills introduced to Parliament.
- an error was made resulting in provision for the expenditure being included in the most recent Appropriation Bills introduced to Parliament under the wrong appropriation item or outcome.
- Erroneous understatement: this criterion may be considered when appropriation has been provided for a purpose but is insufficient to meet the expenditure required. Generally, this would apply when appropriation funding is insufficiently provided for due to an error. An example is where:
- an error was made in determining the amount of expenditure provided for in the most recent Appropriation Bills introduced to Parliament. Whilst the expenditure was foreseen, the actual expenditure required exceeds the amount estimated. This could result from the use of incorrect information, or not taking into account certain information, when estimating the level of expenditure required.
- Erroneous omission: as the term suggests, this criterion covers situations where amounts have been omitted in error. Some examples are where:
Appropriations for expenditure may not have been provided for or insufficiently provided for because the need was unforeseen. The AFM provision makes clear that for the proposed expenditure to be considered ‘unforeseen’ it must be expenditure that was not within the contemplation of the Government when the Appropriation Bills were introduced to Parliament. Therefore the expenditure was either not provided for at all in the Appropriation Bills, or was insufficiently provided for in the Appropriation Bills simply because the need for the expenditure or an increase in the amount of expenditure was unknown at the time of the introduction of the Appropriation Bills to Parliament.
The most common situation to which the unforeseen criterion applies is when a decision to expend money is made by the Government after the Appropriation Bills are finalised. Other examples could include:
- uncertainty in relation to the timing of a payment, ie. if expenditure was expected to take place in the following financial year, but is then required in the current financial year after it is too late for it to be included in the Appropriation Bills.
- where the expenditure was foreseen, the actual amount of expenditure required exceeds the amount estimated. This could result from factors beyond an agency’s control, such as significant changes to activity levels for a demand driven program or significant changes in the exchange rate.
The Finance Minister’s Exclusive Power and Ultimate Discretion
The Finance Minister can only issue an AFM determination if satisfied that the relevant criteria are fully met. Requesting agencies must therefore explicitly address those criteria in their AFM request and ensure that all relevant details are included.
Once it is clear that all criteria are met the Finance Minister is nonetheless not obliged to issue an AFM determination or to issue a determination for the amount requested. This is because the total amount of AFM that may be issued in a financial year is limited and the Finance Minister must consider the possibility of issuing further AFM determinations in the year.
When should an AFM be sought?
Agencies should only apply for an AFM when the legislative criteria can be satisfied. However, agencies should advise their Department of Finance and Deregulation (Finance) Agency Advice Unit (AAU) as early as possible if an application for an AFM appears likely. This enables forward planning and early consultation.
Agencies should ensure that any amounts quarantined within ACM, such as for declared savings or the movement of administered funds, are reinstated to allow access to those amounts. Only after all available appropriations have been exhausted, or close to exhausted, should an application for an AFM be lodged.
Once an agency has confirmed that an AFM is required and that the legislative criteria can be satisfied, they should liaise with their AAU in the first instance to discuss the application. Incomplete or inaccurate applications could delay the process of having the application considered by the Finance Minister. Agencies should therefore submit draft applications to their AAU as soon as it is known that an AFM will be required.
Addressing the legislative criteria
The agency’s explanation of their AFM requirements should specifically and separately address the relevant legislative criteria without reference to other documents and with no assumption of knowledge. The agency should ensure the application is error free as it will be included as part of the Explanatory Statement, that will be lodged with the Determination on the Federal Register of Legislative Instruments. In addition, agencies should exclude any reference to a Cabinet decision number or any other confidential information. Such information should be provided separately.
When addressing the urgency criterion, agencies should consider and state the reasons why payment is urgent and cannot be delayed. Common reasons for urgency are that government policy requires the payment before a certain date or that contractual obligations bind the Commonwealth to make the payment before a certain date. Agencies do not need to assess the financial position of the intended recipient of the payment when considering if the expenditure is urgent, although that can be relevant if delayed payment would prejudice achievement of a government policy. Nonetheless, agencies must also consider factors which would allow payment to be delayed. For example, the terms of a contract might not require payment for 30 days after presentation of an invoice. The relevant consideration is when the cash payment must be made. The timing of recognition of an expense in an agency’s financial statements is not a relevant consideration. Thus, although an expense is recognised in one financial year, AFM will not be issued if the cash payment can be made from an available appropriation in the following financial year.
When an AFM request for additional appropriation under an Appropriation Act results from several unforeseen factors, each factor should be separately identified and quantified as specific dollar amounts.
Generally speaking, an AFM will only be issued to meet accounts at hand, ie. due for payment within 30 days. However, if an agency is close to exhausting its available appropriations and needs to make a series of small payments over an extended period before appropriation from the next set of Appropriation Acts is available, an AFM can be issued for a single amount that covers all of those payments. The need to make such a series of payments must be substantiated e.g. by a contractual payments schedule or by a list of outstanding grant applications. Such estimates must take into account any other anticipated sources of appropriations within the projected time frame (e.g. relevant s31 receipts).
Where should applications be sent?
Agencies are required to complete the Application for AFM form , which specifically addresses the legislative criteria, and have it signed by the designated Chief Financial Officer to confirm the accuracy of the application. Agencies should send the completed application along with supporting documentation to their Finance AAU for consideration.
Finance AAU Role
Vetting AFM applications
Finance AAUs are required to advise ABMT on their assessment of the merits of AFM applications received. They will consult with agencies and with ABMT, if required. In particular AAUs will check whether agencies’ cash situation warrants them seeking an AFM, and confirm that the legislative criteria are fully met. AAUs will also review the application to ensure that all required details are provided and all information provided is accurate. A checklist has been prepared to assist AAUs with their role in assessing AFM applications. AAUs are to complete this checklist and submit it with the AFM application to ABMT for consideration.
Finance ABMT Role
Actioning of AFM requests
On receiving the Application for AFM form and AAU Checklist from the AAU, ABMT will check the application to confirm that it contains sufficient information addressing the legislative criteria and that the formatting is correct. If all the requirements have been properly addressed, ABMT will prepare the Determination and accompanying documentation for consideration by the Finance Minister.
Once the Finance Minister has approved the application, ABMT will arrange for a budget for that amount be entered into the ACM module of CBMS to enable the agency to drawdown the required money from the Official Public Account. ABMT will advise the agency and AAU as soon as the funds are available.
Appropriation is provided on Minister’s determination
Agencies need to be aware that expenditure in excess of appropriation is a breach of section 83 of the Australian Constitution and raises accounts and records issues under the FMA Act. Accordingly, as the issue of AFMs is governed by legislation and there is no guarantee that a particular application will be approved, access to appropriation will not be provided in advance of the Finance Minister’s approval.
Surplus AFM amounts
If an agency finds it has AFM amounts surplus to requirements, they must advise their AAU which will request that the OPA Administration Team quarantine the surplus amounts in ACM. If the surplus amounts have been drawn down, the agency must return those amounts to the Official Public Account (OPA), making sure they are identified as ‘AFM reclaimed’ in the title of the journal.
If the end of the financial year is near and an agency is still holding unspent departmental and non-operating AFM amounts, those amounts must be returned to the OPA prior to 30 June, as AFM amounts are only provided to be spent in the financial year in which the determination was made.
Excess administered operating amounts should also be quarantined within ACM to prevent the drawdown of these appropriations. The annual Appropriation Acts provide a mechanism whereby agencies reduce the amount of appropriation available by means of publishing the required amount in their annual reports.
Spending AFM Amounts on the Correct Purpose
The purpose in law of the amount of appropriation provided by an AFM determination is the purpose set out in the application. It may not be spent on any other purpose including, for example, another program/activity in the same appropriation item. Therefore, if an agency’s request for an AFM is approved by the Finance Minister, agency spending against the AFM will be monitored to ensure consistency with the purpose(s) in the application.
Annual Tabling of Issues from the AFM
Prior to 2008-09, issues made from the AFM before the finalisation of the Additional Estimates Appropriation Bills (AEs) and the Supplementary Additional Estimates Appropriation Bills (SAEs) could be recovered through the additional appropriation provided in these Acts. Amounts issued from the AFM after the SAEs could not be recovered and were therefore reported as a final charge against the AFM provisions in an annual report titled “Issues from the Advance to the Finance Minister as a Final Charge”.
From 2008-09 onwards, the Finance Minister will table in Parliament an annual report on the use of the AFM. The annual report will disclose all AFM amounts issued (there will be no distinction between amounts issued before or after AEs/SAEs) during the financial year. It will include detail on the amounts issued, the reasons for the AFM being issued, the amounts spent and reasons for amounts not being spent. This report is subject to review by the Australian National Audit Office.
Agencies should also report on their use of the AFM provision in their annual reports when discussing program and/or financial performance.
Registration of AFMs on the Federal Register of Legislative Instruments
Determinations under the AFM provisions are legislative instruments and must be registered in accordance with the Legislative Instruments Act 2003. Legislative instruments are publicly available from the Federal Register of Legislative Instruments .
Agencies seeking further information should contact their AAU in the first instance or send an email to AMTMail@finance.gov.au.
1. An equivalent provision, the Advance to the responsible Presiding Officer (APO), is provided in the Appropriation (Parliamentary Departments) Acts to enable the Presiding Officers to issue urgently required appropriation for the three Parliamentary Departments. All references to AFM in this guideline also apply to the APO and references to the Finance Minister also apply to the Presiding Officers.
Contact for information on this page: AMTMail@finance.gov.au