Managing & reporting indemnities

An event occurring that activates an indemnity can place financial obligations on the Commonwealth, and potentially constrain its ability to allocate resources. In this case, the official needs to manage risks and ensure the proper use and management of public resources.

Sound risk management is fundamental to the effective management of exposures that result from granting an indemnity. Under the PGPA Act, responsibility for risk management resides with the accountable authority. The Commonwealth Risk Management Policy requires accountable authorities to embed risk management as part of the culture of the entity so that the shared understanding of risk leads to well informed decision making, in a way that:

• minimises the long term costs to the Commonwealth
• manages the relationship with the indemnified party to reduce the likelihood that a contingency is triggered, and
• manages the risks from an entity perspective, by:
  • identifying the context the risk is to be managed in
  • identifying the risks to be managed, this can be done in consultation with other parties who may have a greater understanding of the risk
  • analysing the risks, possible consequences and likelihood of occurrence
  • identify the need to retain the risk or whether the risk may be transferred
  • if the risk is to be retained how is the risk to be treated.

Systematic reviews are essential to ensure the changing profile of the risks do not expose the Commonwealth to an increased level of risk.