Notification of significant non-compliance with the finance law (RMG 214)

Key points

1. Accountable authorities of Commonwealth entities are required to notify their responsible Minister, as soon as practicable, of any significant issue that has affected the entity or any of its subsidiaries.
2. “Significant issues” notifiable to the responsible Minister include significant
   non-compliance with the finance law.
3. The Finance Minister requires that accountable authorities also notify the Finance Minister of instances of significant non-compliance with the finance law reported to their responsible Minister.
4. To give effect to this requirement, accountable authorities must notify the Finance Minister of every instance of significant non-compliance with the finance law except where the significant non-compliance involves breaches of the general duties of officials and there is no connection to the management of public resources.
5. Annual reports must include a statement of any non-compliance issues notified to the responsible Minister during the reporting period and an outline of the action taken to remedy the non-compliance.

What is the finance law?

6. For the purpose of the PGPA Act, ‘finance law’ (as defined in section 8 of the PGPA Act) means:
   • the PGPA Act;
   • the Public Governance, Performance and Accountability Rule 2014 (PGPA Rule);
   • the Public Governance, Performance and Accountability (Financial Reporting) Rule 2015 (Financial Reporting Rule);
   • any instrument made under the PGPA Act, such as:
     • the Commonwealth Procurement Rules;
     • the Commonwealth Grants Rules and Guidelines;
     • accountable authority instructions issued under section 20A PGPA Act;
     • determinations establishing special accounts under section 78 PGPA Act;
     • government policy orders issued under section 22 PGPA Act;
     • delegation instruments made under sections 107-110 PGPA Act;
   • an Appropriation Act.

What is “significant” non-compliance with the finance law?

7. The term “significant” is not defined and carries its natural meaning (i.e. “noteworthy; important; consequential”). It requires the exercise of judgement to determine whether a particular instance of non-compliance is significant.
8. What constitutes significant non-compliance with the finance law is for the accountable authority to determine based on the specific circumstances, the operating context of the entity, and in consultation with the responsible Minister, as appropriate.
9. In determining significance, accountable authorities are encouraged to consider:
   • materiality—the importance of the issue relative to the entity’s size and operations (including the value and volume of non-compliance);
   • occurrence—whether the non-compliance is “one-off” or systemic; and
   • risk—whether the issue is likely to be politically sensitive, and the likely or actual impact on the reputation, public perception, financial position or financial sustainability of the entity or that of others (bearing in mind that consequences may be non-financial).
10. Significant non-compliance with the finance law would generally include (see also Case Studies):
    • high volume, high value and/or systemic instances of non-compliance with the Commonwealth Procurement Rules or the Commonwealth Grants Rules and Guidelines;
    • high volume, high value and/or systemic issues reflecting internal control shortcomings (e.g. high volume and/or high value non-compliance with internal approval requirements for arrangements and commitments);
    • serious fraudulent activity by officials (e.g. theft, accounting fraud, making or using false documents);
    • serious fraudulent activity by non-officials (e.g. independent contractors), reflecting internal control shortcomings; or
    • non-compliance issues that have impacted, or are likely to impact, on the entity’s financial sustainability, or likely to be of particular political or public interest.
11. In addition, this guidance provides several case studies and Appendix A provides a flow chart that may be useful in deciding whether to report specific instances of
    non-compliance.
12. Officials should also note that non-compliance with the requirements of the finance law may attract a range of criminal, civil or administrative remedies, including under the Public Service Act 1999 and the Crimes Act 1914.
13. Your entity may also be subject to additional requirements to report fraud under the Commonwealth Fraud Control Framework. For further information, refer to RMG No. 201: Preventing, detecting and dealing with fraud and the Commonwealth Fraud Control Framework.

What should be reported?

14. Section 19 of the PGPA Act requires, among other things, that accountable authorities of Commonwealth entities notify their responsible Minister of any significant issue that has affected or may affect the entity.
15. However:
    • if a Commonwealth entity has enabling legislation, then subsection 19(1) applies only to the extent that compliance with that subsection is not inconsistent with compliance with that legislation; and
    • section 19 is subject to any Commonwealth law that prohibits disclosure of particular information.
16. The Finance Minister requires that accountable authorities of Commonwealth entities notify the Finance Minister of any significant non-compliance with the finance law by their entities also reported to their responsible Minister.
17. To give effect to this requirement, accountable authorities must notify the Finance Minister of every instance of significant non-compliance with the finance law reported to their responsible Minister, except where the significant non-compliance involves breaches of the general duties of officials and there is no connection to the management of public resources.

Reporting breaches of duties to the Finance Minister

18. Where a breach of one or more general duties of officials occurs that is considered to be significant, it must be reported to the Finance Minister where there is also a connection to the management of public resources.
19. In determining whether there is a connection between the breach and the management of public resources, relevant considerations are likely to include:
    • whether there is a link between the breach and the proper use (i.e. efficient, effective, economical and ethical) of public resources (i.e. relevant money, relevant property and/or appropriations);
    • whether the breach reflects shortcomings in the effectiveness of internal controls or systems of risk oversight and management.
20. For example, while the misuse of information to obtain a benefit may constitute a breach of a general duty of officials(and potentially fraud) and may be reportable to the responsible Minister where it constitutes significant non-compliance, it would not need to be reported to the Finance Minister under section 19 of the PGPA Act unless there was a connection to the management of public resources.
21. Fraudulent activity by non-officials (e.g. independent contractors who have not been prescribed as officials) may also constitute significant non-compliance with the finance law, e.g. where there has been a failure to establish and maintain an appropriate system of internal controls.

What about matters determined not to be “significant” non-compliance?

22. Not all matters will be significant enough to warrant reporting. Matters that are not required to be reported include:
    • low volumes of instances where grants and procurements are reported late;
    • low volume and/or non-systemic instances of non-compliance with the entity’s accountable authority instructions;
    • minor instances of non-compliance with the duties of officials where the matter is dealt with by management; and,
    • inadvertent credit card misuse that is identified by the relevant official and/or the entity’s system of internal control and repaid. 
23. While a matter may not be sufficiently significant to report to the responsible Minister and/or the Finance Minister, entities are encouraged to review all incidents of non-compliance as these could indicate internal control problems or the beginning of more systemic issues.
24. The identification and reporting of non-compliance could also be used as the basis for improving the efficiency and effectiveness of entity internal controls and increasing awareness and understanding of the PGPA framework. For example, non-significant non-compliance could be brought to the attention of the audit committee to gauge the effectiveness of the internal controls of the entity.
25. Audit committees play a key role in the governance of Commonwealth entities. If properly utilised, they can significantly support the accountable authority in meeting their duties and responsibilities under the PGPA Act. The PGPA Rule also requires audit committees to review the appropriateness of the accountable authority’s system of internal control. For further information, refer to RMG No.202: Audit Committees.  

Process for reporting significant non-compliance

When to report?

26. The responsible Minister must be notified of significant non-compliance as soon as practicable after the accountable authority becomes aware of the issue.
27. What constitutes ‘as soon as practicable’ will vary with circumstances and may depend on the nature and risk associated with an instance of significant non-compliance.
28. For example, some significant issues necessitate immediate notification (e.g. due to their scale or ramifications) whereas other notifications may be more appropriately grouped together and notified according to a schedule agreed with the responsible Minister.
29. The timing of the reporting to the Finance Minister is generally expected to align with the timing of notifications provided to the responsible Minister.
30. Fraud may have significant consequences for the entity. Therefore, accountable authorities are encouraged to report suspected fraud that may be significant at an early stage, even where investigations may be ongoing (it is not necessary to report sensitive details). This is to support the provision of sufficient information to support ministers in discharging their responsibilities as members of the government accountable to Parliament and the community, including managing and reporting on Commonwealth spending and risk management (including financial and reputational risks).

Format for reporting to the responsible Minister and the Finance Minister

31. The format in which an entity notifies the responsible Minister of significant issues is for the accountable authority to determine, in consultation with their responsible Minister, as appropriate.
32. The Finance Minister is to be notified in writing in line with entities’ internal procedures for addressing a minister other than your portfolio minister.
33. When notifying the responsible Minister and the Finance Minister, accountable authorities are encouraged to include a description of the nature of the non-compliance with the finance law as it relates to the entity. Accountable authorities are also encouraged to describe the remedial action taken, or proposed to be taken, by the entity to ensure that the effects of the non-compliance have been addressed. This may include the use of measures designed to prevent or reduce similar non-compliance occurring in the future.
34. If a matter of non-compliance occurs that affects two or more entities, then each entity’s accountable authority would need to determine whether the non-compliance is a significant matter affecting their entity, and whether to notify their minister. One entity informing a minister of a non-compliance matter would not absolve the accountable authority of another entity from notifying their responsible Minister of the same matter if it were considered significant for their entity.
35. When reporting fraud to the Finance Minister, a high level description is sufficient (sensitive details are not necessary). For example:

[Entity] has identified [number] instances of potential fraud which are currently under investigation. The investigation involves [insert brief description, e.g. possible misuse of a Commonwealth credit card over an extended period of time. The quantum of money involved is yet to be determined, however the issue may attract media attention].

36. Once reported, the accountable authority is not required to provide progress updates on the matter to the Finance Minister (including once the investigation has concluded). However, the Finance Minister may choose to follow up with the relevant entity to follow the progress.
37. The accountable authority would be expected to have processes and systems in place to ensure that an appropriate record of what has been advised to the minister is kept, which would assist the entity in meeting annual reporting requirements under the PGPA Rule.
38. The model letter provided (Appendix B) may be used as a guide when preparing letters to the Finance Minister.