Finance Circular
No. 2011/06
To all Departments and Commonwealth authorities and Commonwealth companies
subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act)
CAC Act compliance: Departmental responsibilities
Purpose
This Finance Circular, which was initially provided in draft form on the Finance website from
November 2010, provides guidance to portfolio Departments assisting their portfolio
Ministers to deal with compliance issues affecting Commonwealth authorities and whollyowned Commonwealth companies (CAC Act bodies). Portfolio Departments can work
collaboratively with the directors of CAC Act bodies to help ensure CAC Act bodies have
adequate arrangements in place to deal with compliance issues, including disputes arising in
the compliance context.
Key Points
1.
The directors of CAC Act bodies are subject to duties imposed by the CAC Act (for
Commonwealth authorities) and the Corporations Act 2001 (for wholly-owned
Commonwealth companies). These include the duty to act with care and diligence in the best
interests of the CAC Act body.1 Accordingly, directors should ensure that there is an
adequate framework in place to identify and respond to suspected compliance breaches.
Portfolio Departments, in assisting their Ministers, have a role in ensuring compliance
management processes within the portfolio, are effective.2
2.
Based on the arrangements agreed between Departments and CAC Act bodies,
CAC Act bodies should liaise with the portfolio Department regarding significant compliance
issues when they are identified. To ensure seamless communication, Departments and CAC
Act bodies should identify relevant personnel as points of contact in their organisation.
3.
Departments and CAC Act bodies can contact the Department of Finance and
Deregulation (Finance) for advice on CAC Act compliance issues.
4.
In undertaking its role, the portfolio Department may also wish to contact Finance
about compliance issues when they need to seek advice on the CAC Act, including those that
might arise in consultation with the board of relevant CAC Act bodies or when the portfolio
Minister wishes to make a formal request to the Finance Minister to commence civil penalty
proceedings against the director or employee of the CAC Act body responsible for a
1
Sections 22 of the CAC Act and 181 of the Corporations Act.
Departments assisting Ministers in the oversight of portfolio bodies generally is consistent with long-standing
principles as reflected, for example, in the 1976 Report of the Royal Commission on Australian Government
Administration (also known as the Coombs Report).
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compliance breach, under Schedule 2 to the CAC Act.3 The Finance Minister can enforce a
civil penalty provision against directors and employees of Commonwealth authorities. Refer
to clauses 1 to 6 of Schedule 2 to the CAC Act, which are at Attachment A.
5.
Portfolio Departments, in consultation with their relevant CAC bodies, should refer
suspected criminal compliance issues to the Australian Federal Police (AFP). If you would
like to report a crime to the Australian Federal Police please visit
http://www.afp.gov.au/contact/report-a-crime.aspx
6.
For wholly-owned Commonwealth companies, suspected civil and criminal
compliance issues covered by the Corporations Act 2001 (Corporations Act) should be
referred to the Australian Securities and Investments Commission (ASIC) in the first instance.
If you would like to lodge a complaint about a company with ASIC, please visit
http://www.asic.gov.au/complain#how
7.
A flowchart providing a step by step guide to assist portfolio Departments and
CAC Act bodies in addressing compliance issues is included at Attachment B.
8.
Guidance to assist portfolio Departments and CAC Act bodies to develop suitable
consultation arrangements is included at Attachment C.
What is a compliance issue?
9.
For the purpose of this Finance Circular, a compliance issue is the failure of a director
or employee of a CAC Act body to comply with their various duties under the CAC Act or the
Corporations Act. For some offences either criminal or civil penalties may be applied,
depending on the seriousness of the offence.
10.
For CAC Act bodies, examples of directors’ and employees’ duties include, but are
not limited to the following duties.
Civil penalties

failing to exercise care and diligence when discharging duties (subsection 22 of the
CAC Act for Commonwealth authorities; for wholly-owned Commonwealth companies,
section 180 of the Corporations Act).

failing to act in good faith and in the best interests of the CAC Act body for a proper
purpose (section 23 of the CAC Act and section 181 respectively)

improperly using their position or information obtained due to their employment with the
CAC Act body for personal benefit, for someone else’s benefit or to the detriment of the
CAC Act body or another person (sections 24 and 25 and sections 182 and 183
respectively).
Criminal offences

failing to act in good faith, misuse of position and misuse of information - criminal
offences (section 26 and section 184 respectively)

misusing a Commonwealth credit card or credit voucher. (sections 28A and 28B).
Schedule 2 to the CAC Act and sections 1317H – 1317S of the Corporations Act 2001 outline the
consequences for CAC Act bodies that contravene civil penalty provisions.
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Managing compliance issues
11.
Boards of CAC Act bodies should ensure appropriate arrangements for training and
updating the knowledge of all employees (including directors) on CAC Act obligations, and
other relevant laws, such as the enabling legislation for a Commonwealth authority, are in
place. Such arrangements may help reduce compliance issues resulting from a lack of
understanding.
12.
The National Alternative Dispute Resolution Advisory Council has prepared a guide
entitled Managing Disputes in Federal Government Agencies: Essential Elements of a
Dispute Management Plan. The guide aims to help Commonwealth agencies to develop and
regularly review dispute management plans, including by ensuring appropriate use of
alternative dispute resolution principles and processes.
13.
Directors of CAC Act bodies should endeavour to conduct internal investigations on
compliance cases where they are able to do so without risking perceptions of conflicts of
interest. If the internal investigation reveals that a compliance issue could involve a criminal
offence, the board should refer the matter to the AFP for investigation. Suspected issues
under the Corporations Act should be referred to ASIC for investigation.
14.
Though CAC Act bodies are responsible for progressing compliance cases, portfolio
Departments have an interest in understanding compliance breaches that occur within the
portfolio. The precise mechanisms for sharing information should be agreed by CAC bodies
and portfolio Departments. Communication may take a variety of forms depending on the
circumstances of the breach.
15.
Correspondence between portfolio Departments and CAC Act bodies for serious
compliance issues should generally be through the Chief Executive Officer or the Chair of the
CAC Act body. Information sought by the portfolio department may include:

whether the breach may cause a material loss to the CAC Act body;

the legislative provisions within the CAC Act or the Corporations Act (for wholly-owned
Commonwealth companies) that have not been complied with;

the director or employee involved; and

in the board’s view, whether the breach is civil or criminal in nature.
16.
If information is not provided by a CAC Act body to a responsible Minister, the
Minister may use subsections 16(1)(b) or 41(1)(b) of the CAC Act to require the board of the
CAC Act body to provide information on compliance issues.
Finance’s role in enforcing CAC Act provisions
17.
The Finance Minister has specific powers under Schedule 2 to the CAC Act regarding
civil contravention penalties (Attachment A). Among other things, these powers allow the
Finance Minister to seek a disqualification order or a pecuniary penalty order under
section 27C of the CAC Act and clause 3 of Schedule 2 to the CAC Act. Ministers who wish
the Finance Minister to institute civil penalty proceedings should write to the Finance
Minister. On some occasions, suspected compliance issues regarding CAC Act bodies may
be raised with portfolio Departments or Ministers by the Department of Finance and
Deregulation or the Finance Minister. Generally, input would be sought from CAC Act
bodies, although protocol would normally mean this would occur through the portfolio
department.
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18.
Currently, directors of CAC Act bodies in the General Government Sector are also
required to provide an annual compliance report. Guidelines on how to complete annual
compliance reports can be found in the Finance Circular 2008/05: Compliance Reporting –
CAC Act Bodies. The compliance report typically involves input from a CAC Act body’s
Audit Committee. This is consistent with the role of Audit Committees in helping the
authority or company (and its directors) “to comply with its obligations” under the CAC Act
(as stated in sections 32 and 44 of the CAC Act, regarding authorities and companies
respectively). More information may be found in Finance Circular 2008/03: Audit committees
for Commonwealth authorities and wholly-owned Commonwealth companies.
Contacts
19.
If you have any questions or comments about this Finance Circular, please contact
CACAct@finance.gov.au or telephone (02) 6215 3657.
Marc Mowbray-d’Arbela
Assistant Secretary
Legislative Review Branch
Financial Management Group
21 October 2011
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Attachment A
Schedule 2—Civil consequences of contravening civil penalty provisions
Note:
See section 6.
1 Declarations of contravention
(1) If a Court is satisfied that a person has contravened 1 of the following provisions, it must
make a declaration of contravention:
(a) subsections 22(1) and 23(1) and (2), 24(1) and (2), 25(1) and (2) (officers’ duties);
(b) subsection 11(1) (annual reporting rules for Commonwealth authorities);
(c) subsection 20(4) (accounting records for Commonwealth authorities);
(d) subsection 30(3) (aligning accounting periods for subsidiaries of Commonwealth
authorities);
(e) subsection 36(1B) (annual reports for Commonwealth companies).
These provisions are the civil penalty provisions.
Note:
Once a declaration has been made, the Finance Minister can then seek a pecuniary penalty order
(clause 3) or a disqualification order (section 27C).
(2) A declaration of contravention must specify the following:
(a) the Court that made the declaration;
(b) the civil penalty provision that was contravened;
(c) the person who contravened the provision;
(d) the conduct that constituted the contravention;
(e) the Commonwealth authority or Commonwealth company to which the conduct
related.
2 Declaration of contravention is conclusive evidence
A declaration of contravention is conclusive evidence of the matters referred to in
subclause 1(2).
3 Pecuniary penalty orders
(1) A Court may order a person to pay the Commonwealth a pecuniary penalty of up to
$200,000 if:
(a) a declaration of contravention by the person has been made under clause 1; and
(b) the contravention:
(i) materially prejudices the interests of the Commonwealth authority or
Commonwealth company; or
(ii) materially prejudices the ability of the Commonwealth authority or
Commonwealth company to pay its creditors; or
(iii) is serious.
(2) The penalty is a civil debt payable to the Commonwealth. The Commonwealth may
enforce the order as if it were an order made in civil proceedings against the person to
recover a debt due by the person. The debt arising from the order is taken to be a
judgment debt.
4 Compensation orders
Compensation for damage suffered
(1) A Court may order a person to compensate a Commonwealth authority or
Commonwealth company for damage suffered by the authority or company if:
(a) the person has contravened a civil penalty provision in relation to the authority or
company; and
(b) the damage resulted from the contravention.
The order must specify the amount of the compensation.
Damage includes profits
(2) In determining the damage suffered by the Commonwealth authority or Commonwealth
company for the purposes of making a compensation order, include profits made by any
person resulting from the contravention or the offence.
Recovery of damage
(3) A compensation order may be enforced as if it were a judgment of the Court.
5 Effect of clause 4
Clause 4:
(a) has effect in addition to, and not in derogation of, any rule of law about the duty or
liability of a person because of the person’s office or employment in relation to a
Commonwealth authority or Commonwealth company; and
(b) does not prevent proceedings from being instituted in respect of such a duty or in
respect of such a liability.
6 Who may apply for a declaration or order
Application by Finance Minister
(1) The Finance Minister, or some other person authorised in writing by the Finance Minister
under this subclause to make the application, may apply for a declaration of
contravention, a pecuniary penalty order or a compensation order.
Application by Commonwealth authority or Commonwealth company
(2) The Commonwealth authority or Commonwealth company may apply for a compensation
order.
(3) The Commonwealth authority or Commonwealth company may intervene in an
application for a declaration of contravention or a pecuniary penalty order in relation to
the Commonwealth authority or Commonwealth company. The Commonwealth authority
or Commonwealth company is entitled to be heard on all matters other than whether the
declaration or order should be made.
No one else may apply
(4) No person may apply for a declaration of contravention, a pecuniary penalty order or a
compensation order unless permitted by this clause.
(5) Subclause (4) does not exclude the operation of the Director of Public Prosecutions Act
1983.
Attachment B
Steps to addressing compliance issues
(Dashed lines indicate options)
Australian Federal Police*
Compliance issue
Serious compliance
issue is referred
1. CAC Act body should
liaise with portfolio
Department about serious
issues
CAC Act body
seeks to address
compliance issue
internally
CAC Act body
2. CAC Act body
provides specific
information such as the
details of the breach,
those involved and
whether the breach
could concern civil or
criminal matters
Australian Securities and
Investments Commission
(if it involves a company)*
CAC Act Body
seeks views
from Finance
Portfolio Department or
responsible Minister
3. Portfolio department
seeks Finance’s views
about the compliance
issue.
Department of Finance and
Deregulation (Finance)
4. Finance briefs Finance Minister
on the compliance issue.
Portfolio Department’s Minister
requests the Finance Minster to
consider commencing civil
penalty proceedings on the
reported compliance issue
The CAC Act body reports
the compliance issue in their
annual compliance report
(Finance Circular 2008/05
refers)
Finance Minister
considers commencing
civil proceedings
Finance Minister
Civil penalty
proceedings
Outcome of civil
proceedings
Proceedings
dismissed
Pecuniary,
Compensation, or
Disqualification Orders
are given
*Any decision to institute criminal proceedings is determined by the Commonwealth Director of Public Prosecutions.
Once a criminal conviction has been recorded, civil penalty proceedings cannot continue in relation to the conduct that
is substantially the same.
Attachment C
Guidance for Portfolio Departments and CAC bodies on
consultation arrangements
If developing internal guidance on this matter, portfolio Departments and CAC bodies may
wish to consider:
1. identifying which officials should be in charge of collecting information (including
information on compliance);
2. what type of information should be collected, for example:
a. details of processes that CAC Act bodies have in place to identify CAC Act
compliance issues;
b. strategies implemented by CAC Act bodies to address reported compliance
issues, such as:
i.
classifying the compliance issue as either civil or criminal;
ii.
contacting enforcement agencies to facilitate further investigations;
iii.
notifying the responsible Minister;
c. existing reports provided to the audit committee on compliance issues as they
are identified. To remove red tape, these reports could form part of CAC Act
bodies’ (in the general government sector) annual compliance reporting (refer
Finance Circular 2008/05);
3. a regular feedback process on remedial action for CAC Act compliance reporting
issues; and
4. in circumstances where the CAC Act body does not provide the information
voluntarily, Departmental officials can be authorised (or delegated under s48B of the
CAC Act4) by the portfolio Minister to seek the information (refer sections 16 and 41
of the CAC Act).
Note: the authorisation or delegation would be provided to the Secretary of the
Department, but delegations can be provided to a more appropriate officer.
References
CAC Act:
FMA Act:
Policy Guidance:
4
sections 16 and 41
section 44
– Compliance Finance Circular 2011/06;
– Compliance Reporting – CAC Act Bodies
Finance Circular 2004/15 Chief Executive Instructions
Section 48B allows Ministers to delegate some of their powers and functions to a Departmental Secretary. This was
inserted into the CAC Act by the Financial Framework Legislative Amendment Act 2010, which commenced on
1 March 2011.