Core governance principles

The core principles that underpin considerations and decisions that influence the design of a governance structure for an activity or body are:

The extent of application of each principle can be adjusted in the context of the activity, including how it will operate and how it aligns with the priorities of the government.

Clarity of purpose

  • What is the intended outcome of the activity?
  • Who are the relevant stakeholders, both internal and external to the Australian Government?
  • Who has the capacity to undertake the activity (e.g. requisite skill set, staff and infrastructure)?
  • What level of funding is available?
  • What are the risks associated with the activity? Who is best placed to manage them?

Designing effective governance arrangements starts with establishing a clear purpose for the proposed activity.

A lack of clarity about an activity’s purpose can result in ineffective governance structures that inhibit the efficiency and performance of the body tasked with undertaking the activity. In particular, it can make it difficult for the accountable authority to set a clear direction for the body to achieve the scope and objectives set for it by the Parliament or the Government.

Only when the purpose of an activity is clear can the governance arrangements be properly considered. Put simply, form follows function.

Example: The National Gallery of Australia is established by the National Gallery Act 1975, which prescribes its functions as being:
  • to develop and maintain a national collection of works of art
  • to exhibit, or to make available for exhibition by others, works of art from the national collection or works of art that are otherwise in the possession of the Gallery.

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Accountability to the Parliament

  • What level of accountability is required (e.g. higher level where there is a higher risk to the government)?
  • Does the activity need legislation to fulfil the intended purpose?
  • How involved does the government need to be?
  • What level of reporting is required?

Australian Government bodies are accountable to the Parliament for their management of public resources and their performance. This is generally achieved by a body being accountable to a minister, who is in turn accountable to the Parliament. A body’s level of accountability may also depend on its governance structure.

Accountability to Parliament is also met through the reporting requirements set out in the PGPA Act or the body’s enabling legislation, in addition to other statutory reporting and disclosure requirements. The appropriate level of accountability should be determined based on an assessment of risk, both financial and non-financial.

Appropriate levels of financial and non-financial information should be available to Parliament to enable a clear line of sight between resource management decisions such as planning, allocating and spending and the resulting level of performance.

Clear and regular reporting underpins accountability by showing the extent to which the body achieved its purposes, delivered efficient and effective outputs and satisfied its legislative and stewardship obligations during the reporting period.

The core accountability principles contained in the PGPA Act include the requirements to prepare a corporate plan, an annual performance statement and an annual report. These baseline requirements allow the Parliament to review the operations of Commonwealth entities and companies and hold them to account for performance through mechanisms such as Senate estimates and the Joint Committee of Public Accounts and Audit.

The analysis required under the policy to support the establishment of a body outside the oversight of the Parliament (e.g. outside the PGPA Act framework) will need to clearly articulate why no accountability to the Parliament is proposed and what alternative is appropriate.

Example: An Australian Government body that does not receive funding through the Appropriation Bills will generally not be subject to examination in Senate estimates hearings. Similarly, the Australian National Audit Office can only conduct performance audits of government business enterprises if requested by the Joint Committee of Public Accounts and Audit.

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Transparency to the public

  • How much transparency is needed?
  • How does the level of transparency interact with the accountability to the Parliament?
  • Where should information be reported (e.g. on a website or in an annual report)?

The public expects Australian Government bodies to operate transparently and to be able to justify their decisions and actions through the accountability mechanisms discussed above. Members of the public should be able to access appropriate levels of information, in a timely manner, about how Australian Government bodies operate and how public resources are being managed.

The standard set of public reporting obligations under the PGPA Act will commonly be sufficient to provide the necessary level of public transparency. Additional reporting may be necessary and should be considered in the context of the scale and risk profile of the activity. Public reporting can also be used to hold bodies or specific office holders to account for their decisions and performance.

Establishing a body outside the PGPA Act framework may result in lower levels of transparency to the public about the operations of the body. The analysis required under the policy to support this type of body will need to articulate the appropriateness and adequacy of the transparency that is proposed.

Example: The PGPA Act, through the PGPA Financial Reporting Rule 2015,establishes a standardised approach for a Commonwealth entity’s financial reporting. The rule sets out requirements at the whole-of-entity level as well as reporting of certain activities at a more granular level, such as the reporting requirements for activities managed within a special account (see Division 6 of the rule).

Section 46 of the PGPA Act requires the accountable authority to prepare an annual report, which includes the audited financial statements, and to provide it to their minister for presentation to the Parliament.

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Optimisation of efficiency and performance

  • What is the most efficient way to deliver the intended outcome of the activity?
  • Can efficiencies be gained by leveraging synergies with existing activities?
  • What is the service standard expected to be delivered?
  • How is the required standard of service best achieved, in the context of the funding available?
  • How will performance be measured, in the context of the risk involved with the activity (e.g. need to consider the objective, input process, outcome and impact)?

The creation of a new PGPA Act entity imposes a range of obligations on that entity, such as making a corporate plan, producing an annual report and forming its own audit committee. These all place additional administration expenses on government. Alternative governance structures, such as creating the activity within an existing entity can avoid unnecessary costs as well as leverage other synergies within entities that have operational alignment. It can also reduce the operational efficiency of the government itself and hinder its engagement with the public in the delivery of services.

To optimise efficiency, the governance policy requires new activities to be undertaken by existing Australian Government bodies or non-government bodies unless there is a clear case for approving a new body. This reduces unnecessary duplication of administrative effort and inefficient use of resources, particularly where the new body is seeking to be established as a new PGPA Act entity. Analysis should be done of the environment in which the activity will operate to assess whether it would be better performed by another Australian Government body, whether it is already being undertaken elsewhere, such as by a state or territory government, or whether the activity should be subject to contestability or be purchased from a non-government provider.

Structuring the Australian Government in a clear and coherent manner enables the public to engage efficiently with it. Government entities are custodians of public resources, and under section 15 of the PGPA Act their accountable authorities are responsible for managing resources in an efficient, effective, economical and ethical manner.1 Having a clear understanding of a body’s purpose is essential before you can understand how efficiency can be optimised.

The accountable authority should set clear objectives and expectations to enable the body to perform to the highest standard. Performance should be monitored on an ongoing basis, as well as reported annually through the performance statement required by section 39 of the PGPA Act.

Performance is not simply about achieving an outcome at any cost; it is about managing and using resources efficiently to ensure that the highest possible level of performance is achieved. Delivering on this objective is made much easier when governance arrangements are fit for purpose.

Where there is clarity of purpose and efficiency of operation, high performance is more likely to be achieved. A high-performance culture – where employees understand the overall purpose and vision of an Australian Government body – can be crucial to the delivery of an activity. Driving high performance is made easier when it is supported by effective leadership and fit-for-purpose governance structures.

Example: A small activity that undertakes a combination of statutory and policy functions could be structured within the relevant Department of State. This would remove the administrative obligations associated with running a separate entity and can optimise synergies with the Department of State. Legislation can provide statutory independence from the Department of State, if required. For example, the Therapeutics Goods Administration is a statutory authority that operates within the Department of Health.

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1. This duty on the accountable authority extends to all resources of the entity, including the management of discrete bodies that exist within the entity.

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Last updated: 21 December 2015