The banking of cash by Commonwealth entities (RMG 413)

Audience

This guide is relevant to non-corporate Commonwealth entities (NCEs) and corporate Commonwealth entities (CCEs), within the meaning of these terms in the Public Governance, Performance and Accountability Act 2013 (PGPA Act).

Key points

This guide:

  • provides an overview of the legislative requirements for Australian Government cash management, central banking and transactional banking
  • supports an understanding of entity requirements for the banking of relevant money
  • provides an overview of appropriations and cash, central cash management roles and the Central Budget Management System (CBMS).

This guide replaces:

  • The banking of cash by Commonwealth entities (RMG 413)—June 2014

  • Banking of relevant money received by Ministers and officials (RMG 300)
    - June 2014

Resources

This guide is available on the Department of Finance website at www.finance.gov.au.

Other relevant publications include: Guide to appropriations (RMG 100)

Introduction

  1. All non-corporate Commonwealth entities (NCEs) and corporate Commonwealth entities (CCEs) undertake transactional banking, using a range of banking services and payment methods to transact their ordinary business.
  2. CCEs are able, on their own account, to hold money and enter into an agreement with a bank. However, NCEs:
    • manage cash for and on behalf of the Australian Government, in accordance with government policies and related requirements
    • maintain transactional bank accounts in Australia and, with specific approval from the Minister for Finance (Finance Minister), can maintain transactional bank accounts overseas.
  3. Such accounts must not be operated for primarily earning interest or investment returns.

Legislative Framework

4.  Under section 53 of the Public Governance, Performance and Accountability Act 2013 (PGPA Act), the Minister for Finance (Finance Minister), on behalf of the Commonwealth:

         • may enter into an agreement with a bank to conduct Australian Government banking business including to open and maintain bank accounts

         • must open and maintain a central bank account with the Reserve Bank of Australia (RBA).

5. The primary central bank account of the Australian Government is the Official Public Account (OPA), part of set of bank accounts called the Official Public Account Group.

6. Section 53 of the PGPA Act requires NCE bank accounts in Australia to be opened and maintained with the RBA or an authorised deposit-taking institution (ADI).

7. The Public Governance, Performance and Accountability (Finance Minister to Accountable Authorities of Non-Corporate Commonwealth Entities) Delegation 2014 (Finance Minister’s Delegations) delegates authority, under section 53 of the PGPA Act, to the accountable authority of each NCE.

8. Under section 55 of the PGPA Act, ministers or entity officials are obligated to bank relevant money promptly and in accordance with any rules made under the section. 

9. Sections 19-21 of the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule), support section 55 of the PGPA Act by specifying when relevant money must be banked, and when it is not required to be banked.
 

Appropriations and cash

10. Under the Commonwealth of Australia Constitution Act (The Constitution):
 
         • all revenues or moneys raised or received by the Commonwealth shall form one Consolidated Revenue Fund (CRF), to be appropriated for the purposes of the Commonwealth, in the manner prescribed by the Constitution

         • no money is to be drawn from the CRF except under an appropriation made by law. 

11. An appropriation is an entitlement in an Act for the government to spend money. For more information, see Guide to appropriations (RMG 100).

12. The CRF is a notional concept, established in section 81 of the Constitution, to represent all Commonwealth money. The CRF includes, for example, all money that is held in bank accounts operated by NCEs (in Australia and overseas), money held in the OPA Group, money kept on an NCE’s premises and any money received by ministers and officials. Drawing money from the CRF without a valid appropriation in law would breach the Constitution. 

13. When an appropriation is provided, it is expressed in terms of expenditure for specific purposes. Appropriations are managed by NCEs to make payments for specific purposes on behalf of the government and to pay for their own operating expenses.

14. Records of appropriations and money collected by the NCE are maintained in the CBMS by the relevant NCE and Finance.
 

Central Banking

15. Under subsection 53(3) of the PGPA Act, the Commonwealth’s central bank account must be maintained with the RBA.

16. The RBA provides a facility to manage the OPA Group, the aggregate balance of which represents the government's daily cash position. Finance manages this facility on behalf of the Australian Government.

17. Central banking includes managing the daily consolidation of Australian Government cash in the OPA and transferring cash from the OPA to entity bank accounts. Figure 1 represents the cycle of money moving between the OPA and entity bank accounts.

Figure 1: The movement of money between the OPA and entity bank accounts

 

18. Transferring money this way facilitates the consolidation of Commonwealth cash.

Central cash management roles

19. The following entities have central cash management roles:
        • The Australian Office of Financial Management (AOFM), in the Treasury portfolio, is responsible for ensuring the government’s cash needs are met and is required, by ministerial direction, to maintain a cash balance in the OPA Group. The AOFM achieves this by:
                 o managing government debt and investment
                 o issuing Treasury bonds and Treasury notes to fund the government’s cash needs 
                 o investing cash in short-term investments, such as RBA term deposits.

        • Finance transfers amounts from the OPA at the request of entities to their transactional bank accounts, to meet their cash requirements. Finance also monitors the implementation of related government policies.

        • The RBA oversees the Australian payments system, which encompasses a wide variety of individual payment methods. These methods include electronic funds transfer between bank accounts, payment cards, cheques and high-value corporate payments. 

20. All entities manage cash to make payments and receipt cash they receive. Bank accounts are used to manage payments and receipts.

Interbank cash transfers

21. The RBA maintains the OPA and also: 
        • holds accounts for ADIs, called Exchange Settlement Accounts (ESA)
        • owns and operates the Reserve Bank Information and Transfer System (RITS) through which transactions across ESAs occur.

22. When an entity maintains a bank account with another ADI (ie other than with the RBA), a cash transfer between that ADI’s ESA and the RBA’s ESA is an interbank cash transfer. Interbank payment obligations in Australia are settled using RITS. 

23. RITS payments are settled on a real-time gross settlement basis, with processing and settlement taking place in real time (continuously).
 

Central Budget Management System

24. The CBMS is used to manage the flow of financial information between Finance and entities to facilitate cash and appropriation management, the preparation of budget documentation and financial reporting.

25. Finance transfers money from the OPA to the entity’s bank account. For cash to be made available to an entity, the entity must submit a request in the CBMS for cash against a specific appropriation.

When relevant money must be banked

26. Under section 19 of the PGPA Rule officials who receive bankable money are to deposit that money in a bank, either by the next banking day or within the period prescribed in the accountable authority’s instructions. For money that cannot be banked, see When money is not required to be banked.

27. The discretion provided to accountable authorities under section 19 of the PGPA Rule allows them to take into account organisational or operational matters that may affect the prompt banking of money.

28. A banking day is a day that the bank is open for business (ie not on a weekend or public holiday in the place where the money is received). This accommodates locational issues such as:
        • entities operating in regional and remote areas of Australia or overseas
        • the differing dates of state, territory or regional public/bank holidays across Australia.

29. Section 20 of the PGPA Rule provides an exception to section 19 requirements, for the deposit of relevant money in a bank where an official receives money for carrying out an activity of the entity. 
 

Example: Section 20 of the PGPA Rule provisions may apply if:

  • money is stored at an entity’s shopfront, for use as a cash float
  • money is withdrawn from an entity’s bank account to make cash payments (eg for

     payment of salaries, purchasing goods and services or for making grants).

When money is not required to be banked 

30. Under section 21 of the PGPA Rule, if relevant money is not bankable it does not need to be banked, but it must be managed in accordance the instructions issued by the entity’s accountable authority

Example: The accountable authority’s instructions may provide for foreign coinage

that cannot be banked or used to make payments in Australia, to be provided to an

officer who is travelling to that foreign country, to use the money in that country.

31. There are certain circumstances where money is not bankable, including where:

       • the entity’s bank will not be accept the money

Example: Money that is in foreign coinage, damaged or contaminated is not usually accepted by banks and therefore cannot be banked.

  • the accountable authority considers that it is not economically viable to bank the money.

Example: If coins are collected in a place far away from where they are banked, the accountable authority may decide to store the coins until they are of sufficient number or value to justify the cost of transporting the coins for banking.

32. If circumstances change so that the money no longer falls into either of the above two categories, then the money becomes bankable and is subject to section 19 of the 
PGPA Rule.

Appendix 1 - Glossary

Accountable authority—under the PGPA Act, the person or group of persons responsible for, and with control over, the entity's operations.

Australian Office of Financial Management (AOFM)—a prescribed agency, within the Treasury portfolio, responsible for the Australian Government's debt management activities, which includes running tenders of CGS and advising the Treasurer on all aspects of government debt management.

Authorised deposit-taking institution (ADI)—a body corporate that has been authorised under the Banking Act 1959 to carry on a banking business. ADIs are regulated by the Australian Prudential Regulation Authority (APRA), in accordance with the Banking Act 1959. A list of ADIs can be found on APRA’s website.

Bank—in accordance with section 8 of the PGPA Act:

  • an authorised deposit-taking institution (within the meaning of the Banking Act 1959)
  • the RBA, or
  • a person who carries on the business of banking outside Australia.

Banking day—under the PGPA Act and section 19(2) of the PGPA Rule, a day other than a Saturday, a Sunday or a day that is a public holiday in the place where the money was received (i.e. by the NCE). For a bank, a banking day means a day on which the Reserve Bank Information and Transfer System is open for real-time gross settlement.

Central bank—a non-commercial bank, which may or may not be independent of government, which has some or all of the following functions:

  • conduct monetary policy
  • oversee the stability of the financial system
  • issue currency notes
  • act as banker to the government
  • supervise financial institutions and regulate payments systems.

Central Budget Management System (CBMS)—manages the flow of financial information between Finance and entities to facilitate cash and appropriation management, preparation of budget documentation and financial reporting.

Consolidated Revenue Fund (CRF)—as defined under section 81 of the Commonwealth of Australia Constitution Act.

Consolidation requirements—requirements under the PGPA (Finance Minister to Accountable Authorities of Non-Corporate Commonwealth Entities) Delegation 2014 (Finance Minister’s Delegations) for the daily reporting, transfer and sweeping of NCE and specified CCE bank accounts and transactions to facilitate central cash management.

Official Public Account (OPA)—the Australian Government’s primary central bank account and forms part of the OPA Group.

Official Public Accounts Group (OPA Group)—a set of accounts provided and maintained by the central bank on behalf of the Australian Government.

Payment method—method by which payments are made (eg electronic funds transfer between bank accounts, credit or debit cards, cheques).

PGPA Act—the Public Governance, Performance and Accountability Act 2013.

PGPA Rule—the Public Governance, Performance and Accountability Rule 2014, a legislative instrument for the purposes of the Legislative Instruments Act 2003.

Reporting—the daily reporting by banks to the central bank in the agreed file formats to meet the consolidation requirements.

Reserve Bank of Australia (RBA)—in its capacity as a transactional bank.

Reserve Bank Information and Transfer System—Australia’s real-time gross settlement systems through which interbank settlement of payment obligations occur, with processing and settlement taking place in real time (continuously).

Sweep / sweeping—the overnight value transfer of departmental accounts (receipts and payments), administered payments accounts (payments only) and other consolidating non-exempt account (receipts and payments) bank account balances, returned to the bank account before the start of the next banking day, to meet the consolidation requirements.

Transfer—the same-day or overnight permanent value transfer of administered receipts account balances to the central bank to meet the consolidation requirements.

Treasury bonds—medium to long-term debt securities that carry an annual rate of interest fixed over the life of the security, payable semi-annually.

Treasury notes—a short-term (generally less than six months) discount security redeemable at face value on maturity. Treasury Notes are issued to assist with the Australian Government's within-year financing task.


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