Finance Circular
No. 2008/05
To general government sector Commonwealth authorities and
wholly-owned Commonwealth companies under the Commonwealth
Authorities and Companies Act 1997
Compliance Reporting – CAC Act Bodies
Purpose
To assist directors of bodies in the general government sector (GGS) under the
Commonwealth Authorities and Companies Act 1997 (CAC Act) with reporting
requirements on compliance and financial sustainability.
Target Audience
This Circular is relevant for directors, management, audit committees and chief
financial officers of Commonwealth authorities and wholly-owned Commonwealth
companies under the CAC Act and in the GGS.1
Key Points
1. The Australian Government has decided that CAC Act bodies in the GGS must
(similar to agencies under the Financial Management and Accountability Act 1997
(FMA Act)) report on legislative compliance and financial sustainability, on an annual
basis, to the Minister for Finance and Deregulation (Finance Minister) as well as the
body’s responsible Minister. This Circular provides information for directors of GGS
CAC Act bodies on complying with these requirements. Finance Circular 2008/04
explains the requirements for FMA Act agencies.
2. To give effect to the policy, the Finance Minister requires2 the directors of each
GGS CAC Act authority and wholly-owned company to provide a Compliance Report
in the form of the template at Attachment A, indicating whether or not, in their
opinion:
a) they and their body have complied with the provisions and requirements of the
CAC Act, the Commonwealth Authorities and Companies Regulations 1997
(CAC Regulations) and the Commonwealth Authorities and Companies (Report of
1
2
This Circular updates and replaces Finance Circular 2006/11.
Under paragraphs 16(1)(c) and 41(1)(c) of the CAC Act, respectively.
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Operations) Orders 2005 (CAC Orders),3 collectively “the CAC Act legislation”;
and
b) the costs of the body are forecast to be within estimated sources of external
receipts for the current financial year, including, where appropriate, estimates of
external receipts in the Australian Government’s central budget system.
3. The compliance certification in Part 1 of the Compliance Report is retrospective.
That is, it relates to the financial year ended prior to the completion of the Compliance
Report (this will generally be the financial year ended 30 June). The financial
sustainability certification in Part 2 of the Compliance Report is prospective. That is,
it relates to the current financial year as at the date of the signing of the Compliance
Report (for most bodies, this will be the financial year that began on 1 July).
4. The Compliance Report is to be provided to the Finance Minister, through the
Secretary of the Department of Finance and Deregulation (Finance), and to a body’s
responsible Minister, by the fifteenth day of the fourth month after the end of the
financial year of the body,4 with the first report being provided for the 2006-07
financial year.
5. The Compliance Report is not part of a body’s annual report.
The Compliance Report
6. As mentioned in paragraph 3, the Compliance Report consists of two Parts. These
are to be completed in the format set out in Attachment A. Part 1 requires the directors
to report whether the body and its directors have complied with the CAC Act
legislation. Part 2 requires the directors to report whether the body’s costs are forecast
to be within estimates of external receipts for the current financial year.
7. The sign-offs in Part 1 and Part 2 are made “in the opinion of directors”,
consistent with existing certifications made by directors, such as the certification of
the financial statements.
8. In providing their opinion, directors will be subject to existing provisions within
their governance framework dealing with duties of officers (including directors’
duties), which will reflect relevant obligations and provide context for those
obligations. In particular, directors of Commonwealth authorities, in completing the
sign-offs, should have regard to:
a) care and diligence requirements and the business judgement rule under section 22
of the CAC Act; and
b) the reliance on information or advice provided by others under section 27D of the
CAC Act.
9. Directors of wholly-owned Commonwealth companies are subject to equivalent
provisions dealing with the conduct of officers under the Corporations Act 2001.5
3
As amended or replaced.
The deadline will be 15 October if the financial year ends on 30 June.
5 Section 180 and Section 189.
4
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10. It is not intended that all actions and transactions of the body must be checked. It
is, however, expected that directors will ensure that the CAC Act body has sufficient
processes and controls in place to provide reasonable confidence about the accuracy
of information contained in the Compliance Report.
11. The Compliance Report must be signed by a director (and made after a resolution
of directors, where applicable). If, however, the body has only one director, then no
resolution is, of course, necessary before that director signs the Compliance Report.
12. The statement by the director signing the Compliance Report that the above
information is true and correct is a statement that the certifications accurately reflect
the opinion of the directors as expressed by a resolution. Accordingly, the statement
does not relate to the accuracy of the opinion on which the report is based.
13. Through being provided to the body’s responsible Minister as well as the Finance
Minister, the Compliance Report is intended to build on existing reporting
arrangements, including the monitoring of small agencies’ financial estimates and
monthly reports by the relevant portfolio department.
14. Obligations may arise under the Freedom of Information Act 1982 (FOI Act) as a
result of completing this report. The extent to which information, contained in or used
in the preparation of the Compliance Report, may be subject to an FOI Act request,
will depend on the individual circumstances of the request. Bodies with further issues
regarding FOI Act implications should seek legal advice.
Part 1 – Report on compliance with the CAC Act legislation
15. Part 1 of the Compliance Report requires directors to state whether, in their
opinion, the body and its directors have complied with the requirements of the
CAC Act legislation.
16. Directors of CAC Act bodies have a number of specific obligations under the
CAC Act and are responsible for ensuring that the body complies with its legal
obligations. Directors should, of course, be familiar with all requirements of the
CAC Act legislation. Where the Compliance Report reflects that a provision of the
CAC Act legislation has not been complied with, the directors need to provide details
of:
a) the provisions that have not been complied with;
b) the circumstances surrounding any non-compliance;
c) where relevant, the inadequacies of internal control systems; and
d) any corrective action that has been taken or is proposed to be taken.
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Basis of the Compliance sign-off
17. In completing Part 1 of the Compliance Report, directors will be able to make the
sign-off based on the CAC Act body’s internal control systems, management and
audit committee advice.
18. The processes, systems and controls that a body has in place to ensure compliance
with its legal obligations will vary between CAC Act bodies based on their size,
operations and structure. The specifics are up to the directors of each body to
determine. In most cases it is likely that these processes, systems and controls would
be an extension of those that currently give confidence to the directors associated with
the operations of the body generally.
19. In completing the Compliance Report, directors will be able to draw on advice,
materials and processes, which might include a program of internal audits, internal
assessment of controls, senior management oversight and advice, and specialised
assurance in relevant high risk areas. Additionally, it is expected that audit
committees will have a role in reviewing and monitoring these internal control
mechanisms. Under paragraphs 32(1)(a) and 44(1)(a) of the CAC Act, a function of
the audit committee is to help the authority or company (respectively) and its directors
to comply with obligations under the CAC Act.6
20. It is, of course, recognised that any internal control system, no matter how well
operated, is unlikely to be able to prevent or detect every error or misstatement.
Internal control systems are limited by realities that judgements in decision-making
can sometimes prove to be incorrect, and that systems can fail. A reasoned judgement
and balanced risk-based approach to the compliance monitoring process is therefore
expected.
21. The nature of the confidence derives, in part, from the concept of selective testing
of the body’s controls, which involves judgement regarding the areas to be tested and
the nature, timing and extent of the tests to be performed. In addition, judgement is
required in interpreting the results of the testing. Even with good faith and integrity,
errors in judgement can be made. Directors are therefore relying on evidence that is
persuasive rather than conclusive (ie, the level of confidence is not required to be
absolute). In this regard, reasonable confidence would be associated with a remote
chance of overlooking a significant compliance failing.
Scope of the Compliance sign-off
22. The sign-off covers obligations relating to the relevant body contained in the
CAC Act legislation,7 but does not include complying with the
6
Under section 32 (for Commonwealth authorities) and section 44 (for wholly-owned
Commonwealth companies), directors must establish and maintain an audit committee.
Accordingly, not establishing and maintaining an audit committee would involve non-compliance
with the CAC Act and should be reported in the attachment to the report.
7 The sign-off only relates to obligations applicable to the body or its directors. For example, the
CAC Orders relate to the preparation of the annual report of operations by Commonwealth
authorities and do not contain requirements for Commonwealth companies.
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Finance Minister’s Orders on the preparation of financial statements, as those
statements are audited by the Auditor-General.
23. Where a body has been notified of a general policy of the government under
section 28 (for Commonwealth authorities) or section 43 (for wholly-owned
Commonwealth companies) of the CAC Act,8 directors must ensure the policy is
carried out in relation to the body. Accordingly, non-compliance with a policy
notified under these sections is non-compliance with the CAC Act and should be
reported in the attachment to the report. A body should also advise the Department
that administers the general policy of government where it considers it has failed to
comply with a policy notified under sections 28 or 43.
24. Likewise, some bodies are prescribed in Schedule 1 to the CAC Regulations as
being subject to procurement directions of the Finance Minister under section 47A of
the CAC Act. For these bodies, any non-compliance with Finance Minister’s
(CAC Act Procurement) Directions 2004 should be reported in the attachment to the
report.
Known breaches of the CAC Act legislation
25. The compliance monitoring process relied on by directors is not required to
provide absolute confidence that compliance failings have not been overlooked.
Where directors are aware that obligations under the CAC Act legislation have not
been complied with, they must provide full details of the non-compliance, the
circumstances surrounding this non-compliance and any corrective action that has
been taken (or is proposed to be taken). Directors should also indicate whether further
discussions with Finance are required to determine if the Finance Minister should
consider commencing civil penalty proceedings under Schedule 2 of the CAC Act.9
26. This requirement does not, however, purport to require disclosure by directors that
is contrary to any privilege that a person might claim, including the privilege against
self-incrimination.
27. Requirements under the CAC Act legislation are statutory obligations and
compliance is not assessed based on materiality of financial impact. Minor breaches
of the CAC Act legislation that result in an immaterial loss, or no loss, must still be
reported as non-compliance for the purposes of the Compliance Report. Where there
is a large number of cases of non-compliance, such as caused by systemic issues of
the same nature, it is sufficient to describe the problem in general terms and provide a
reasonable estimate of the number of instances involving non-compliance.
8
Some Commonwealth authorities are exempt or partially exempt from section 28 of the CAC Act.
Where a body is exempt from a general policy of government, there is no need to report
non-compliance with the policy.
9 Directors have the ability to contact Finance, and their Department of State, at any time during the
year if they consider non-compliance has occurred that may require commencement of
proceedings under Schedule 2 of the CAC Act.
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Part 2 – Report on financial sustainability
28. Consistent with statutory responsibilities, directors are expected to develop and
implement risk management strategies associated with the conduct of their body’s
operations,10 including measures to manage risks associated with financial
sustainability.11 Directors should also have control systems in place to monitor the
body’s performance against its budget.
29. Part 2 of the Compliance Report requires directors to state whether, as at the date
of signing, in their opinion the costs of the body are forecast to be within estimated
sources of external receipts for the current financial year, including, where
appropriate, estimates of external receipts contained in the Australian Government’s
central budget system. This Part of the Report is in addition to current reporting
requirements, such as the operating loss approvals process and financial estimates and
monthly reporting requirements.
30. For the purposes of this sign-off:
a) External receipts are defined as a forecast of cash inflows from:
 the Australian Government (including all appropriations);
 cash inflow from operating activities; and
 proceeds from the sale of property, plant and equipment.
For example, external receipts would include cash inflows from sources such as
industry levies, sale of goods and services and interest earnings; and
b) Costs are defined as a forecast of amounts to be paid out relating to:
 operating activities;
 the purchase of property, plant and equipment; and
 financing obligations.
For example, costs would include cash outflows relating to employees, suppliers
and debt payments representing principal and interest.
31. The intention of this Part of the Compliance Report is for the Government to
receive an indication of the financial sustainability of a body (particularly where the
body’s financial circumstances have deteriorated). For example, the Compliance
Report will provide an opportunity for a CAC Act body to ‘flag’ to Government
circumstances where a body may, potentially, seek additional budget funding in order
to carry out its existing functions. Comments contained in this Part of the Compliance
Report could also include updating Government on a situation where details of the
financial circumstances of a body may have already been communicated to
Government.12
10
For Commonwealth authorities, the annual report of operations must include a discussion of the
risks and opportunities that it faces and the strategies adopted or proposed to be adopted to
manage those risks and opportunities (refer paragraph10(1)(b) of Schedule 1 to the CAC Orders).
11 “Financial sustainability” in this context is the ability for the body to conduct existing operations
without unexpected calls on the Budget, and includes the management of capital and long-term
assets and liabilities.
12 The responsible Minister may have previously been notified of the body’s circumstances and/or
an approval for an operating loss may have previously been obtained from the Finance Minister.
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32. Where external receipts are expected to be less than costs for the period, the
directors must attach, to the Compliance Report, an explanation for this opinion.
Where appropriate, the Compliance Report could reflect any actions the directors
consider necessary to address the anticipated shortfall. The Compliance Report should
also reflect, in these circumstances, whether an application for budgeting for an
operating loss has been made to the Finance Minister, or whether an application will
be made.
33. There may be a number of valid circumstances for a GGS CAC Act body to
operate in conditions where, in the current financial year, costs are expected to be
greater than its external receipts. This may include, for example, circumstances
relating to using existing cash/investment reserves to cover costs or the purchase of
property.13
Submitting the Compliance Report
34. The Compliance Report must be provided to the Finance Minister by the fifteenth
day of the fourth month after the end of the financial year of the body (generally
15 October). The Finance Minister requires that the Compliance Report be provided
directly to the Secretary of Finance, who will receive it on behalf of the Finance
Minister.
35. Directors should also provide a copy of the Compliance Report to their
responsible Minister, at the same time as it is provided to Finance on behalf of the
Finance Minister. For most GGS CAC Act bodies, the report would typically be
submitted to the responsible Minister along with the body’s annual report. Indeed. it is
anticipated that it may be completed concurrently with the body’s annual report.
However, the Compliance Report does not form part of the annual report and should
not be included in the annual report.
36. Accordingly, the Compliance Report is separate from a body’s annual report for
the purposes of the CAC Act or, if relevant, the Corporations Act 2001. However, for
Commonwealth authorities, the Finance Minister’s requirement under paragraph
16(1)(c) of the CAC Act to provide the Compliance Report is a Ministerial Direction,
if it is in the GGS, and this direction must be described in its annual report (for the
purposes of paragraph 12(1)(a) of the CAC Orders).
37. In circumstances where a body is expected to cease to be covered by the
CAC Act, either mid-reporting period or before the Compliance Report is submitted,
Finance should be contacted to discuss appropriate arrangements.
13
Investment purchases and redemptions are excluded as a body is required to provide an
explanation as part of its Compliance Report if it is using its reserves (investments) to fund costs.
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Contacts
38. If you have any questions or comments about this Circular, please contact
Legislative Review Branch at LRB@finance.gov.au or visit our website at
http://www.finance.gov.au
Tom Ioannou
Acting Division Manager
Financial Framework Division
13 June 2008
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Attachment A
[Name of Commonwealth Authority / wholly-owned Commonwealth
Company]
Compliance Report for financial year ##/##
1) For the financial year ended dd/mm/yy, in the opinion of the directors, based on
adequate internal control systems, including the advice of management and the
audit committee, [name of entity] and its directors have:
a) complied / not complied with the provisions and requirements of the
Commonwealth Authorities and Companies Act 1997 (CAC Act); and
b) complied / not complied with the provisions and requirements of the
Commonwealth Authorities and Companies Regulations 1997
(CAC Regulations) and Commonwealth Authorities and Companies (Report of
Operations) Orders 2008 (CAC Orders) (as amended or replaced).
If there has not been full compliance, including due to inadequate internal
control systems, please attach to this report a detailed description of all known
instances, including:
 the provisions or requirements of the CAC Act, CAC Regulations or
CAC Orders that have not been complied with;
 the circumstances surrounding any non-compliance;
 where relevant, the inadequacies of internal control systems; and
 any corrective action that has been taken or is proposed to be taken.
2) As at the date of this Report, in the opinion of the directors, the costs1 of [name of
entity] are / are not forecast to be within its estimated sources of external
receipts2 for the current financial year, including, where appropriate, estimates of
revenue contained in the Australian Government’s central budget system.
Where directors consider that the estimated external receipts is not sufficient to
meet expected costs, please attach an explanation for this opinion.
1
For the purposes of the Compliance Report, costs are defined as a forecast of amounts to be paid
out relating to: operating activities; the purchase of property, plant and equipment; and financing
obligations. For example, costs would include cash outflows relating to employees, suppliers and
debt payments representing principal and interest.
2 For the purposes of the Compliance Report, external receipts are defined as a forecast of cash
inflows from: the Australian Government (including all appropriations); operating activities; and
proceeds from the sale of property, plant and equipment. For example, external receipts would
include cash inflows from sources such as industry levies, sale of goods and services and interest
earnings.
Attachment A
I, _____________________________, as a director of [name of entity], certify that
the above information:
a) is true and correct; and
b) has been made in accordance with a resolution of directors. [Remove if
not applicable]
Signed:
________________________________
Name:
_______________________________
Date:
________________________________
Attachment A
Signing Instructions
This Compliance Report must:
a) be signed by a director; and
b) specify the date on which the Report is made; and
c) if the authority or company has more than 1 director – be made in accordance
with a resolution of the directors.
This report has been requested by the Finance Minister under section 16
(Commonwealth authorities) or section 41 (wholly-owned Commonwealth
companies) of the CAC Act, as applicable.
Timing
This report should be provided to the Finance Minister and the responsible Minister
for the entity by the 15th day of the fourth month after the end of the financial year of
the body.3 (For Commonwealth authorities, this is the same day that the authority’s
annual report must be submitted to the responsible Minister.)
3
The deadline will be 15 October where the financial year ends on 30 June.