Governance structures in the public sector
Financial and corporate governance arrangements effectively determine how power and authority are provided, apportioned and exercised by different Commonwealth bodies. These arrangements have implications for how performance information, both financial and non-financial, is reported.
The Commonwealth is one of the largest operational entities in the southern hemisphere, and encompasses 177 different entities and companies and over 700 other governance relationships. The Commonwealth operates through a number of different organisational structures including departments of state, office holders, statutory authorities (including statutory corporations), companies and trusts.
The overarching and individual governance arrangements for Commonwealth entities and Commonwealth companies, sometimes referred to as corporate governance, are defining factors in the successful operation of government.
- Portfolio structures
- Commonwealth entities and companies
- Sector classification of Commonwealth entities and companies
Portfolios in the Australian Government are established through the Administrative Arrangements Order (AAO) . Acting on advice from the Prime Minister, the Governor-General appoints Ministers, establishes departments of state (also referred to as ‘portfolio departments’) and formally allocates executive responsibility through the AAO.
The AAO specifies the matters dealt with by each department of state and the legislation administered by each minister. In accordance with the AAO, most of the general executive powers of the Commonwealth are exercised by ministers or their departments.
Since 1 October 2014, following the federal election, the Commonwealth public sector has consisted of 18 departments of state in 16 portfolios:
Within the 16 portfolios, there are three high-level groupings of bodies:
- non-corporate Commonwealth entities
- corporate Commonwealth entities and
- Commonwealth companies.
All Commonwealth entities and companies are established under power that comes from the Constitution, usually through legislation and the exercise of executive power. The PGPA Act further clarifies the financial and corporate governance arrangements of Commonwealth entities.
As all Commonwealth entities and companies form part of the executive government, all these public sector entities are accountable to the Parliament.
A Commonwealth entity is:
- a department of state
- a parliamentary department
- an entity listed in the PGPA Rule or other legislation
- a body corporate established by a law of the Commonwealth and prescribed in an Act or the rules to be a Commonwealth entity.
Importantly Commonwealth companies are not Commonwealth entities for the purposes of the PGPA Act. Commonwealth companies are governed by a different area of the PGPA Act allowing for the separation of duties imposed on accountable authorities and officials (Commonwealth entities) from directors and officers of Commonwealth companies.
Non-corporate Commonwealth entities
Non-corporate Commonwealth entities are legally and financially part of the Commonwealth. Examples include departments of state, parliamentary departments or listed entities.
The Constitution recognises that core aspects of government operations are conducted by departments of state. A department of state has the flexibility to accommodate policy and functional activities in various ways. For example, functions in departments can be separately branded, giving them a distinct identity, and legislation may be used to establish positions or entities, with specific roles and responsibilities, which are administratively supported by a department.
A ‘listed entity’ is a body, person, group of persons or organisation (or any combination of these) that is prescribed by rules made under the PGPA Act, but does not include a body corporate. A listed entity might be something that, if it were not listed, would form part of another non-corporate Commonwealth entity. For example, the Australian Office of Financial Management would be part of the Department of the Treasury if it were not a listed entity for the purpose of the PGPA Act.
Corporate Commonwealth entities
A corporate Commonwealth entity is a body corporate that has a separate legal personality from the Commonwealth and can act in its own right exercising certain legal rights such as entering into contracts and owning property.
Some provisions of the PGPA Act apply to corporate Commonwealth entities differently to non-corporate Commonwealth entities because of their different legal status, for example the provisions relating to appropriations, banking, investments and the use of indemnities.
Types of corporate Commonwealth entities include: Commonwealth Superannuation Corporation, Airservices Australia and the Reserve Bank of Australia.
Commonwealth companies are companies that are established by the Commonwealth under the Corporations Act 2001 and are wholly controlled by the Commonwealth. The Corporations Act is the primary regulatory framework for these companies. Chapter 3 of the PGPA Act sets out requirements that Commonwealth companies have to comply with in addition to the requirements of the Corporations Act in order to meet appropriate standards of public sector accountability.
Types of Commonwealth companies currently include: NBN Co Limited and Australian Rail Track Corporation Limited.
To provide financial information on the performance of Commonwealth entities and companies the Commonwealth public sector is classified by institutional sector, as defined and required by Australian equivalents of international standards — known as Government Finance Statistics.
Commonwealth public sector has three main sector classifications, illustrated below:
- general government sector — comprises all government units and non-profit institutions controlled and mainly financed by government
- public financial corporations sector — comprises government-controlled corporations and quasi-corporations mainly engaged in financial intermediation or provision of auxiliary financial services (e.g. Reserve Bank of Australia and Australian Reinsurance Pool Corporation)
- public non-financial corporations sector — comprises government-controlled corporations and quasi-corporations mainly engaged in the production of market goods and/or non-financial services (e.g. Australian Postal Corporation, Airservices Australia and NBN Co Limited).
Disclaimer: the count of entities shown in the figure is indicative. Please see finance.gov.au/flipchart for the latest listing of Commonwealth entities and companies.
Last updated: 23 February 2017