PUBLIC GOVERNANCE, PERFORMANCE AND ACCOUNTABILITY RULE
A rule for the Commitment or Expenditure of relevant money to support
section 52 of the PGPA Act
Please note that this version of the rule for the commitment or expenditure of relevant
money to operationalise section 52 of the PGPA Act has been developed for consultation.
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1. Introduction
The core legislative requirements that apply to the commitment or expenditure of public
money are currently found in the Financial Management and Accountability Act 1997 (FMA
Act) section 44 and FMA Regulations 7-12, and associated delegations. There are no
equivalent requirements in the Commonwealth Authorities or Companies Act 1997 (CAC
Act).
Section 52 of the PGPA Act provides for rules to prescribe matters relating to the
commitment or expenditure of relevant money by the Commonwealth or a Commonwealth
entity, including corporate Commonwealth entities.
Other provisions of the PGPA Act are important in relation to the commitment or
expenditure of relevant money. These include:
 Section 15 - accountable authorities must govern their entity in a way that promotes
the proper use of public resources for which they are responsible, and the financial
sustainability of the entity, in doing so, accountable authorities must also take into
account the effect of their decisions on public resource generally;
 Section 16 - accountable authorities must establish and maintain appropriate risk
and control frameworks;
 Sections 25-29 - general duties of officials including to exercise care and diligence
and to act in good faith and for a proper purpose; and
 Section 71 - requirements for the approval of proposed expenditure by a Minister.
2. Intent and Rationale for the proposed Rule
The draft rule, to be issued under section 52, is required to ensure appropriate
consideration is given to whether proposed expenditure would be a proper use of relevant
money, and that any approval is recorded in writing.
The rule would apply to both non-corporate Commonwealth entities and corporate
Commonwealth entities.
Section three below summarises the detailed requirements that are in place for FMA Act
agencies in relation to the commitment of public money. These requirements apply to
officials regardless of the risks attached to the proposed expenditure, and have encouraged
a focus on process that may not be warranted in all circumstances. The controls around
commitments beyond appropriations designed to prevent budget lock-in, have, in practice,
had limited effect. There are no legislative controls on commitments and expenditure under
the CAC Act. In performing their functions, CAC Act bodies establish their own fit for
purpose approval arrangements. This approach has not resulted in poorer outcomes from
an accountability, transparency or public interest perspective.
In bringing together these two frameworks, the proposed rule seeks to balance the desire
to:
 move away from the level of prescription currently found in FMA Regulations 8-12;

allow accountable authorities the flexibility to develop appropriate systems and
controls for the breadth of transactions undertaken in their entity; and
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
provide a basic legislative requirement concerning the commitment or expenditure
of relevant money.
The draft rule replicates, in part, the requirements of section 71 of the PGPA Act (Approval
of proposed expenditure by a Minister). However, the requirements prescribed in section 71
in relation to making reasonable inquiries and documenting the terms of the approval are
not included in this draft rule as they are either appropriately addressed through the
obligations placed on officials under the general duties provisions in sections 25-29 of the
PGPA Act, or can be required to an appropriate level under directions issued by the
accountable authority.
The proposed rule does not attempt to replicate the specific requirements of FMA
Regulation 10, which seeks to provide a control mechanism around non-corporate entities
approving proposed expenditure for which there is an insufficient appropriation. Regulation
10 was designed in large part to address the issue of budget lock-in, especially outside the
forward estimates years and into the terms of future governments. While the policy
motivation was noble, in practice Regulation 10 has had a marginal impact, not the least
because the bulk of the Commonwealth budget is locked-in through special appropriations
made by the Parliament. One of the other elements of the Regulation 10 process was to
bring into explicit relief requirements in relation to indemnities, guarantees, or warrantees,
this is now contained in the primary legislation (sections 60 and 61).
In recent times, additional controls have been put in place to manage issues around budgetlock-in. One example is the Commonwealth Property Management Framework Lease
Endorsement Process for FMA Act Agencies in relation to long term property leases. In any
case, any administrative mechanisms in place in relation to the proposed expenditure of
funds for which there is insufficient appropriation, including Regulation 10, do not limit the
decisions that might be made by the executive arm of government.
The PGPA Act includes provisions that require officials and accountable authorities to
behave prudently and responsibly in their management of public resources. These
provisions seek to achieve the same policy outcome as Regulation 10, but by requiring a
particular standard of behaviour rather than imposing a mere process, the requirement for
proposed expenditure to be a proper use of relevant money means that it must be efficient,
effective, economic and ethical. Additionally the requirement for an accountable authority
to:
 govern the Commonwealth entity in a manner that promotes financial sustainability
of the entity (section 15 (1) (c)) ; and
 take into account the effect of such decisions on public resources generally (section
15 (2)),
means that officials should carefully weigh the implications of these types of proposed
expenditure not only on their entity but the Commonwealth more broadly.
The Budget Process, through the application of the Budget Process Operational Rules, which
are issued annually and internally within the Commonwealth, provide controls in relation to
commitment and expenditure limits.
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3. Comparable Existing Legislative Requirements
FMA Act section 44 requires a Chief Executive to manage the affairs of his or her agency in a
way that promotes the ‘proper use’ of the Commonwealth resources for which the Chief
Executive is responsible.
FMA Regulations 7-12 contain the core requirements that apply to commitments to spend
public money. These regulations apply to a person, including Ministers, considering entering
into arrangements for or on behalf of the Commonwealth under which public money is
payable or may become payable. In overview:
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Regulation 7 and 7A require that officials must act in accordance with the
Commonwealth Procurement Rules (CPRs) and Commonwealth Grant Guidelines
(CGGs) respectively.
Regulation 8 establishes approval requirements that must be met before a person
enters into an arrangement.
Regulation 9 establishes a single test, comprising a number of elements, which must
be applied by the approver of a spending proposal. In applying the test, an approver
must balance the various elements in order to determine whether the spending
proposal, if given effect, would be a proper use of Commonwealth resources.
Regulation 10 requires that the Finance Minister’s agreement must be sought in
relation to an expenditure that might become payable under an arrangement where
the relevant agency has an insufficient appropriation of money, under the provisions
of an existing law, or a Bill that is before the Parliament, to meet the full expenditure
that might be payable under an arrangement.
Regulation 10A outlines the risk based approach to agreeing to contingent liabilities.
Regulation 12(1) recognises that an approval for a spending proposal may be given
orally, and requires that the ‘terms’ of such an approval be recorded in writing ‘as
soon as practicable’ after giving the approval. Regulation 12(2) mandates additional
recording requirements for grants, whereby there is a need to record the ‘basis’ of
an approval, in addition to the terms of the approval.
The CPRs and CGGs place requirements on entities in relation to the expenditure of
public money.
The CAC Act does not contain any specific requirements dealing with the commitment or
spending of money.
Policy frameworks are also relevant. The Budget policy framework contains significant
controls over the planning of government expenditure. Policy frameworks exist for major
categories of expenditure, such as procurement and grants, as well as property related
expenditure. References to the FMA Act and Regulations in these frameworks will be
updated to refer to the PGPA Act from 1 July 2014. It is expected that their scope will
remain largely unchanged. Updated CPRs and CGGs will be issued as rules under sections
101 and 102 of the Act.
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4.
Proposed rule for the Commitment or Expenditure of relevant money
Commitment and expenditure of relevant money
The purpose of this rule is to prescribe matters relating to the commitment or expenditure of relevant
money by officials who are appropriately authorised.
(1) An official of a Commonwealth entity must not approve proposed expenditure of
relevant money unless the official is satisfied that the expenditure would be a proper use
of relevant money.
(2) If an official of a Commonwealth entity approves proposed expenditure of relevant
money, the official must record the approval in writing as soon as practicable after giving
the approval.
5. Date of Effect
The substantive provisions of the PGPA Act will commence on 1 July 2014 and it is intended
that this rule will commence at the same time.
6. Guidance material
Finance Circular No. 2011/01 Commitments to spend public money (FMA Regulations 7-12)
provides guidance on the financial management framework requirements that apply when
committing and spending public money. Finance’s model Chief Executive’s Instructions also
provide guidance on best practice arrangements that relate to committing public money.
This guidance will be updated to reflect the PGPA Act and draft rule before the legislation
comes into effect.
The CPRs and CGGs will be reissued as legislative instruments under the PGPA Act. While
these instruments will be updated to make reference to the relevant provisions of the PGPA
Act, the requirements in relation to entering into procurements and grants will not change.
7. Linkages to other Elements of Reform
The draft rule is closely supported by the general responsibilities placed on accountable
authorities under PGPA Act sections 15 (Duty to govern the Commonwealth entity) and 16
(Duty to establish and maintain systems relating to risk and control) to ensure that the
important control of approving proposed expenditure is appropriately addressed in
Commonwealth entities. This will allow entities to apply risk and proportionality
considerations to approvals appropriate to their own circumstances.
8. Impact
Non-corporate Commonwealth entities will benefit from the streamlined procedures
around the expenditure and commitment of money of the Commonwealth. This rule would
formalise what takes place in practice for many corporate Commonwealth entities.
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9. Issues for consideration and feedback
Does the draft rule provide an appropriate balance between flexibility for entities, and
recognition of the need to have relevant money spent only for a proper purpose?
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Attachment A
Existing regulatory provisions
Financial Management and Accountability Act 1997 – Section 44 Promoting proper use of
Commonwealth resources
(1) A Chief Executive must manage the affairs of the Agency in a way that promotes proper
use of the Commonwealth resources for which the Chief Executive is responsible.
(1A) The responsibility conferred on the Chief Executive by subsection (1) includes, and is
taken to have included, the power to:
(a) make arrangements, on behalf of the Commonwealth, in relation to the affairs of the
Agency; and
(b) vary those arrangements on behalf of the Commonwealth; and
(c) administer those arrangements on behalf of the Commonwealth.
Note:
Some Chief Executives have delegated this power under section 53.
(1B) Subsection (1A) does not authorise the Chief Executive to exercise, on behalf of the
Commonwealth, a power conferred on the Commonwealth by section 32B.
(2) In discharging the responsibility, and exercising the power, conferred by this section, the
Chief Executive must comply with this Act, the regulations, Finance Minister’s Orders,
Special Instructions and any other law.
(3) In this section:
administer, in relation to an arrangement, includes give effect to.
arrangement includes contract, agreement or deed.
make, in relation to an arrangement, includes enter into.
proper use means efficient, effective, economical and ethical use that is not inconsistent
with the policies of the Commonwealth.
Financial Management and Accountability Regulations 1997 – Regulations 7-12
Commitments to spend public money
7 Commonwealth procurement (Act s 64)
(1) The Finance Minister may issue guidelines in relation to procurement, including:
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(a) procurement policies and processes; and
(b) requirements regarding the publication of procurement details; and
(c) requirements regarding entering into procurement arrangements; and
(d) requirements regarding the disposal of public property.
(2) The guidelines are to have a title approved by the Finance Minister.
(3) An official performing duties in relation to procurement must act in accordance with any
guidelines issued under subregulation (1).
7A Commonwealth Grant Guidelines (Act s 64)
(1) The Finance Minister may issue guidelines (to be called Commonwealth Grant
Guidelines) in relation to grants administration, including:
(a) grant policies and processes; and
(b) requirements regarding the publication of grant details; and
(c) requirements regarding entering into grants.
(2) An official performing duties in relation to grants administration must act in accordance
with the Commonwealth Grant Guidelines.
7B Commonwealth Cleaning Services Guidelines (Act s 64)
(1) The Minister for Tertiary Education, Skills, Jobs and Workplace Relations may issue
guidelines (to be called Commonwealth Cleaning Services Guidelines) for the
administration of tenders conducted by Agencies in relation to the procurement of
cleaning services for properties occupied by Agencies, including:
(a) procurement policies and processes; and
(b) requirements regarding entering into procurement arrangements.
(2) An official performing duties in relation to a tender conducted by an Agency in relation to
the procurement of cleaning services for a property occupied by the Agency must act in
accordance with the Commonwealth Cleaning Services Guidelines.
8 Entering into an arrangement
A person must not enter into an arrangement unless:
(a) a spending proposal has been approved under regulation 9; and
(b) if required, written agreement has been given under regulation 10.
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Note 1:
If an agreement under regulation 10 is required, the agreement does not have to be
given before the proposal is approved under regulation 9. A Chief Executive may require, for
example in the Chief Executive’s Instructions, that these processes be done in a particular order.
Note 2:
A Chief Executive has the power to enter into arrangements, on behalf of the
Commonwealth, in relation to the affairs of the Agency. Some Chief Executives have delegated this
power under section 53 of the Act—see section 44 of the Act.
9 Approval of spending proposals
An approver must not approve a spending proposal unless the approver is satisfied, after making
reasonable inquiries, that giving effect to the spending proposal would be a proper use of
Commonwealth resources (within the meaning given by subsection 44(3) of the Act).
Note 1:
Subsection 44(3) of the Act defines proper use to mean efficient, effective, economical
and ethical use that is not inconsistent with the policies of the Commonwealth.
Note 2:
A spending proposal may be approved at any time prior to entering into the
arrangement, and may be approved well before the arrangement is entered into. At the time the
spending proposal is approved, the expectation is that an arrangement or arrangements will be
entered into, consistent with the terms of the spending proposal.
Note 3:
Approvals may be given subject to conditions.
10 Arrangements beyond available appropriation
If:
(a) a person proposes to enter into an arrangement; and
(b) the relevant Agency has an insufficient appropriation of money, under the provisions
of an existing law or a proposed law that is before Parliament, to meet expenditure
that might be payable under the arrangement;
the person must not enter into the arrangement unless the Finance Minister has
agreed, in writing, to the expenditure that might become payable under the
arrangement.
Note:
In some circumstances the Finance Minister’s agreement will not be required—see
regulation 10A.
10A Contingent liabilities
(1) If:
(a) an arrangement consists of, or includes, a contingent liability in relation to an event;
and
(b) the person proposing to enter the arrangement is satisfied, after making reasonable
inquiries, that:
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(i) the likelihood of the event occurring is remote; and
(ii) the most probable expenditure that would need to be made in accordance with
the arrangement, if the event occurred, would not be material;
regulation 10 does not apply to that part of the arrangement.
(2) For subparagraph (1)(b)(i), the likelihood of an event occurring is remote if there is a
probability of less than 5% that it will occur.
(3) For subparagraph (1)(b)(ii), expenditure is material if it is at least:
(a) an amount specified by the Finance Minister in a legislative instrument for this
paragraph; or
(b) if the Finance Minister has not made a legislative instrument under paragraph (a)
that applies to the Agency—$5 000 000.
Note:
The Finance Minister may specify an amount for a particular Agency.
11 Entering into loan guarantees
(1) Despite regulation 10A, a person must not give a loan guarantee on behalf of the
Commonwealth unless:
(a) a spending proposal for the loan guarantee has been approved under regulation 9;
and
(b) if required, written agreement has been given under regulation 10; and
(c) the Finance Minister has, in writing, approved the giving of the loan guarantee.
(2) In subregulation (1):
loan guarantee means a guarantee of the due payment of one or more of the following:
(a) the whole of the principal of a loan;
(b) the whole of the interest payable on a loan;
(c) a part of the principal of a loan;
(d) a part of the interest payable on a loan.
12 Recording approval of spending proposal
(1) If approval of a spending proposal has not been given in writing:
(a) the approver must record the terms of the approval in writing as soon as practicable
after giving the approval; and
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(b) if the spending proposal relates to a grant, the approver must include in the record
the basis on which the approver is satisfied that the spending proposal complies with
regulation 9.
(2) If:
(a) approval of a spending proposal has been given in writing; and
(b) the spending proposal relates to a grant; and
(c) the approver has not recorded in writing the basis on which the approver is satisfied
that the spending proposal complies with regulation 9;
the approver must record that basis in writing as soon as practicable after giving the
approval.
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Attachment B
Public Governance, Performance and Accountability Act 2013
Section 52 Commitment and expenditure of relevant money
The rules may prescribe matters relating to the commitment or expenditure of relevant
money by the Commonwealth or a Commonwealth entity.
Note:
Rules made for the purposes of this section could prescribe measures to ensure that, to
the greatest extent practicable, relevant money that is within the CRF is not paid out
without an appropriation.
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