Chapter 4: Sustainable Government Finances

Budgetary and Financial Framework

The Australian Government's financial framework consists of the constitutional requirements for the management of public resources, the governing legislation (primarily the FMA Act and the Commonwealth Authorities and Companies Act 1997 (CAC Act)), statutory instruments issued under these Acts including the Commonwealth Procurement Guidelines (CPGs), and Finance's policy and guidance documents that provide advice on the operation of the framework.

In 2005-06 the department focused on four aspects of the financial framework:

  • improving and simplifying the framework to enhance efficiency and compliance;
  • enhancing financial governance and accountability;
  • implementing the government's decisions on Gateway Review Process and Review of Corporate Governance of Statutory Authorities and Office Holders; and
  • providing additional guidance to agencies.

Improving the Financial Framework

As part of Finance's ongoing review of the financial framework, from August to December 2005 the department undertook a Financial Framework Simplification Scoping Study to examine options to simplify the financial framework as it applies to FMA Act agencies. The study considered ways of improving compliance while retaining a robust financial framework that meets the requirements of the constitution, the government, and the parliament and reducing the administrative burden on agencies and ministers.

The department consulted with a number of agencies and the Australian National Audit Office (ANAO) on twenty-two specific areas to be examined. Proposals to simplify these areas were developed and are being progressively implemented. Some initiatives took effect from 1 July 2006, such as the implementation of better focussed reporting under the government's foreign exchange risk management policy, while others will require further development, consultation, ministerial approval and/or possibly legislative change.

New CPGs came into effect on 1 January 2005 which introduced Mandatory Procurement Procedures to implement Australia's international obligations under various free trade agreements to enhance competition and strengthen accountability and transparency. In 2005-06 Finance undertook a review of the CPGs following their first year of operation. The review was informed by consultation with agencies, consideration of the issues that agencies had raised since the initial implementation of the CPGs, and feedback from industry representative groups and professional advisers. The review concluded that while the policy settings remained appropriate, there was scope to clarify some elements of the CPGs to assist agencies in simplifying their procurement processes. The department plans to issue a new Finance Circular in 2006-07 to address the issues identified in the review.

On 8 September 2005 Finance initiated a review of the Endorsed Supplier Arrangements (ESA). The ESA is a prequalification scheme for suppliers in the information, communication and technology products, major office machines, auctioneers and commercial office furniture sectors. The ESA review is assessing the alignment of the policy on the use of endorsed suppliers with changes to the procurement policy framework since the ESA's inception in 1994. The review is being informed by the report of an independent consultant, which was received in June 2006, and consultation with stakeholders and agencies. Finance expects to finalise the ESA review by September 2006, with the findings to be implemented during 2006-07.

Finance continued to manage and improve AusTender, the Australian Government's primary means of disseminating information about government business opportunities and its centralised online tender system. During 2005-06, AusTender published 118 Annual Procurement Plans and 2500 tender approaches to the open market across 130 agencies. More than two million business opportunity notices were sent electronically to around 45,000 suppliers registered on AusTender. AusTender supports agencies in meeting their obligations around the transparency and accountability of their procurement process under the CPGs. All FMA Act agencies, and certain CAC Act entities, are required to publish their business opportunities on AusTender. Across the major spending agencies, seventy per cent now use advanced AusTender capabilities, including publishing tender documents for downloading and receiving tender submissions electronically. These facilities help agencies streamline their procurement processes.

Australian Government Red Tape Review

During 2005-06, in parallel with the Banks Taskforce on Reducing the Regulatory Burden on Business, Finance took a lead role in the examination and reduction of red tape within Australian Government internal administration.

The review commenced with Finance chairing, and providing the secretariat to, an interdepartmental committee (IDC) commissioned by portfolio secretaries on 9 November 2005. The IDC identified twenty-seven areas of possible improvement to internal government administration which currently involve significant costs to agencies.

The government endorsed the findings of the IDC on 13 June 2006. Some initiatives have already been implemented, including:

  • streamlining requirements for agency reporting of foreign exchange transactions with effect from 1 July 2006;
  • removing the requirement for agencies to provide data on information and communication technology for the 2006 and subsequent State of Service reports; and
  • reducing the requirement for agencies to report on compliance with the government's thirty-day small business payment policy from twice-annually to annually, with effect from 13 June 2006.
  • Other initiatives are underway and Finance, in consultation with the Department of the Prime Minister and Cabinet (PM&C), will coordinate quarterly reporting to portfolio secretaries on their progress.

Following the IDC report, the Management Advisory Committee (MAC, a forum of secretaries and select agency heads) commissioned the development of a framework to help ensure an ongoing reduction in red tape within the Australian Government and to minimise new red tape. The framework is being developed by a small taskforce in Finance, overseen by a group of deputy secretaries chaired by Finance and involving PM&C, the Department of Transport and Regional Services, the Australian Public Service Commission and Centrelink. The framework is expected to be published as a MAC Report. Work commenced on 15 May 2006, and a draft report is expected to be available for consideration by MAC during November 2006.

Enhancing Financial Governance and Accountability

During the year the department developed certificates to help agencies report on legislative compliance (with either the FMA Act or the CAC Act, as appropriate) and financial health. This initiative is intended to focus attention on the importance of compliance with the financial framework. As a result, new reporting requirements are being implemented for all entities in the general government sector from the 2006-07 financial year. The revised reporting arrangements require chief executives of FMA Act agencies and directors of CAC Act bodies in the general government sector to provide compliance certificates to the responsible minister and the Minister for Finance and Administration annually.

On 31 January 2006 ANAO tabled in parliament a performance audit of net appropriation agreements made under section 31 of the FMA Act, Audit Report No. 28, 2005-06: Management of Net Appropriation Agreements. The audit examined agencies' management of net appropriation agreements, from 1998, when they were introduced as part of the Australian Government's revised financial framework. The audit concluded that there were shortcomings in relation to past net appropriation agreements, particularly in their form and execution.

Prior to the tabling of the audit report Finance issued a Finance Circular, 2005/07, Net appropriation agreements (Section 31 Agreements) to provide agencies with additional guidance on the operation of section 31 agreements and an improved template to assist with drafting new agreements. The audit acknowledged that this circular, together with previous guidance issued and recent changes to Finance's internal practices, will assist with the proper management of net appropriation agreements in the future. Consistent with the recommendations of the audit report, Finance is continuing to examine additional mechanisms to simplify the financial framework by, for example moving to an administered determinations model.

Gateway Review Process

On 7 November 2005 the government announced the introduction of the Gateway Review Process (Gateway) to assist FMA Act agencies improve their project delivery. Finance was asked by the government to apply this model to Australian Government projects and during 2005-06 established a Gateway Unit to coordinate the implementation of Gateway.

Gateway involves short, sharp and confidential reviews at critical points throughout a project's life, conducted by reviewers not associated with the project. It provides an arm's length assessment of the project against its specified objectives and identifies any areas that may require corrective action. The Gateway concept originated in the United Kingdom and has been applied to over 1700 projects since it began in 2000. In 2003 it was adopted by the Victorian Government. Both the British and Victorian governments have reported considerable improvements in the on-time and on-budget delivery of projects as a result of using Gateway. Gateway will be phased in for FMA Act agencies over the next three years. It will apply to new information technology projects over $10 million and procurement and infrastructure projects over $20 million.

Uhrig Review Implementation

During 2005-06 Finance continued to assist the Minister to co-ordinate implementation of the government's 12 August 2004 response to the Review of Corporate Governance of Statutory Authorities and Office Holders (Uhrig Review).

Following the government's endorsement of the Uhrig Review's governance principles and templates on 12 August 2004, a rolling programme of governance assessments for 162 entities was initiated. Implementation of the governance assessment outcomes by responsible ministers has progressed well, with the majority of implementation expected to occur over 2006-07. As at 30 June 2006 almost ninety per cent of all governance assessments have been submitted to the Minister.

Outcomes have generally fallen into three categories: appropriate application of the Uhrig Review's 'board' and 'executive management' templates; the consistent application of the FMA Act where the 'executive management' template is selected, and the CAC Act where the 'board' template is selected; and the improvement of communication between entities, ministers and departments through the publication of Statements of Expectations and Statements of Intent.

Key outcomes in 2005-06 included the retirement of the Centrelink board and the introduction of executive management from 1 October 2005 and the establishment of Medicare Australia from 1 October 2005, following the retirement of the board of the former Health Insurance Commission and its conversion from the CAC Act to the FMA Act.

Parliament also passed legislation during 2005-06 to:

  • retire the boards of the Australian Institute of Family Studies and the Australian Trade Commission, and to convert them from the CAC Act to the FMA Act;
  • convert the Australian Research Council to executive management and retire the board;
  • convert the National Health and Medical Research Council to executive management and agency status under the FMA Act; and
  • merge the CSS and PSS Boards to form the new Australian Reward Investment Alliance.

Legislation was also introduced to convert the Australia-Japan Foundation from a statutory authority to a bilateral foundation within the Foreign Affairs and Trade portfolio.

Statements of Expectations and Statements of Intent were published for Centrelink, Medicare Australia, the Australian Industry Development Corporation, the Australian Institute of Criminology, the Australian River Company Ltd, the Migration Review Tribunal and Refugee Review Tribunal, the National Australia Day Council, the National Offshore Petroleum Safety Authority, the Social Security Appeals Tribunal, the Office of Parliamentary Counsel, and the Australian Trade Commission.

Guidance to Agencies

Each year Finance provides guidance, training and support to agencies to help improve the level of awareness, skills and knowledge in agencies about the financial framework, and through this to improve financial governance within the Commonwealth. In 2005-06, Finance developed and issued new and enhanced guidance on a range of issues to assist agencies to better understand and comply with the financial framework.

As foreshadowed in the 2004-05 Annual Report, Finance finalised a review of the Guidelines for the Management of Foreign Exchange Risk on 15 June 2006. As a result of the review, the guidelines have been updated to clarify several aspects of the government's foreign exchange risk management policy and to provide additional guidance to entities. Finance released the revised guidelines shortly after the start of the 2006-07 financial year.

On 18 August 2005 Finance released the Governance Arrangements for Australian Government Bodies policy document which aims to promote consistency in the governance arrangements of Australian Government bodies, while reinforcing the principles set out in the Uhrig Review. The policies set out in the document provide a strong platform for informed discussion when officials consult with, or seek advice from, central agencies on the merits of suitable structures for Australian Government bodies.

Finance also released a compilation of legislation under the FMA Act and the CAC Act on 27 October 2005 to provide FMA Act and CAC Act bodies with better access to relevant primary and secondary legislation. These compilations were also used in training agencies on the legislative basis of the framework during 2005-06.

On 23 January 2006 Finance published guidance for cost-benefit analysis under the Financial Management Reference Material series: Introduction to Cost-Benefit Analysis and Alternative Evaluation Methodologies and Handbook of Cost-Benefit Analysis. The publications provide guidance on financial management tools that agencies may refer to when evaluating proposals and reviewing programmes.

In 2005-06 the Budget and Finance Essentials training programme was delivered to over 2,500 participants from across the Australian Public Service (APS). This programme aims to improve Australian Government officials' knowledge of the financial framework and is delivered though a partnership with the University of Canberra. The department continued to help educate Australian Government officials to improve understanding of the procurement policy framework through the conduct of forty procurement seminars in 2005-06. The interactive seminars, held in Canberra and all state capital cities, reached over 1,800 Australian Government officials and provided participants with the opportunity to explore a broad range of procurement issues. The department also hosted the second Australian Government Procurement Conference on 4 April 2006. The conference, which attracted 275 attendees from both government and industry, covered a range of topics under the theme Australian Government Procurement-Working Together for Better Outcomes.

APS Community of Accountants

In late 2005, the MAC Report Managing and Sustaining the APS Workforce identified a critical shortage in skills across the APS and recommended the establishment of professional communities in a range of disciplines, including accountancy. The APS Community of Accountants was announced in June 2006 and is co-sponsored by Finance and ANAO. The work of the Community of Accountants will include developing strategies to attract and retain professional accountants within the public sector, via the promotion of APS careers at universities and other higher education institutions.

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