Standing Directions of the
Minister for Finance under the
Financial Management Act 1994
(as part of the financial management package)
June 2003 (updated May 2015)
The Secretary
Department of Treasury and Finance
1 Treasury Place
Melbourne Victoria 3002
Australia
Telephone: +61 3 9651 5111
Facsimile: +61 3 9651 2062
dtf.vic.gov.au
Authorised by the Victorian Government
1 Treasury Place, Melbourne, 3002
© State of Victoria 2014
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ISBN 978-1-922222-26-8 (pdf)
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Contents
1.
Introduction .................................................................................................... 1
1.1 Preliminary ...................................................................................................................................1
1.2 Background ..................................................................................................................................3
2.
Financial management governance and oversight .......................................... 5
2.1
2.2
2.3
2.4
2.5
2.6
3.
Financial code of practice ............................................................................................................5
Financial governance ...................................................................................................................6
Financial risk management ........................................................................................................14
Authorisations............................................................................................................................16
Internal audit .............................................................................................................................19
External audit .............................................................................................................................21
Financial management structure, systems, policies and procedures ............. 23
3.1 Financial management structure ...............................................................................................23
3.1.1 Public sector agency financial management team structure .......................................23
3.1.2 Chief Finance and Accounting Officer (CFAO) ..............................................................24
3.1.3 Policies and procedures................................................................................................24
3.1.4 Chart of accounts..........................................................................................................25
3.1.5 Managing outsourced financial services ......................................................................26
3.2 Information technology systems ...............................................................................................27
3.2.1 Information technology management .........................................................................27
3.2.2 Information technology operations .............................................................................28
3.2.3 Security .........................................................................................................................29
3.2.4 Development ................................................................................................................29
3.2.5 Change control .............................................................................................................30
3.3 Education and training ...............................................................................................................30
3.4 Policies and procedures .............................................................................................................31
3.4.1 Revenue ........................................................................................................................31
3.4.2 Cash handling ...............................................................................................................33
3.4.3 Bank accounts...............................................................................................................34
3.4.4 Cash flow forecasting ...................................................................................................35
3.4.5 Procurement .................................................................................................................36
3.4.6 Expenditure ..................................................................................................................37
3.4.7 Employee costs .............................................................................................................38
3.4.8 Commission on employee payroll deductions .............................................................39
3.4.9 Physical and intangible assets ......................................................................................40
3.4.10 Liabilities 41
3.4.11 Reconciliations..............................................................................................................42
3.4.12 Administration of discretionary financial benefits .......................................................42
3.4.13 Information collection and management.....................................................................44
4.
Financial management reporting .................................................................. 47
4.1 Internal financial management reporting..................................................................................47
4.2 Reporting requirements in terms of Part 7 of the FMA.............................................................48
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
i
4.3 Other external reporting............................................................................................................51
4.4 Financial performance management and evaluation ................................................................51
4.5 Financial management compliance obligations ........................................................................52
4.5.1 Compliance with Directions..........................................................................................52
4.5.2 Taxation ........................................................................................................................53
4.5.3 Purchasing card ............................................................................................................54
4.5.4 Thefts and losses ..........................................................................................................55
4.5.5 Risk management framework and processes...............................................................56
4.5.6 Treasury risk management ...........................................................................................57
4.5.7 Foreign exchange risk management.............................................................................59
4.5.8 Commodity risk management ......................................................................................60
ii
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
1.
Introduction
The Standing Ministerial Directions (the Directions) are given pursuant to section 8 of the
Financial Management Act 1994 (FMA). They have legislative force and must be complied
with.
1.1
Preliminary
Direction – Purpose and application
The Directions support the FMA by specifying matters that must be complied with by
Government Departments and public bodies to:
 implement and maintain appropriate financial management practices; and
 achieve a consistent standard of accountability and financial reporting.
The Directions specify high-level requirements for financial management. This allows
Government Departments and public bodies to develop specific systems, procedures and
compliance practices, which must be:
 tailored to their own situation; and
 approved and monitored within their own governance requirements.
For the purposes of these Directions, Government Departments and public bodies are
collectively termed ‘Public Sector Agencies’.
Those parts of this document that are of binding legal effect are those parts under the
headings ‘Directions’ and ‘Procedure’. The remaining parts are advisory in nature and
provide guidance in best practice.
Direction – Date of effect
The Directions came into force on 1 July 2003. Until 1 January 2004 a public sector agency
was exempt from full compliance with the Directions in Part 2 if it was in good faith
complying with each of those Directions to the greatest extent reasonably possible.
Direction – Definitions
‘Accountable Officer’ has the same meaning as in section 3 of the FMA.
‘Business Rules’ are the rules made by the Deputy Secretary, Budget and Financial
Management, Department of Treasury and Finance.
‘Directions’ mean these Standing Directions.
‘Financial Reporting Directions’ are directions given by the Minister for Finance for the
accounting treatment and reporting of financial transactions.
‘Government Department’ has the same meaning as ‘Department’ as defined in section 3 of
the FMA.
‘Public sector agency’ means any public body as defined in section 3 of the FMA or any
Government Department.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
1
‘Responsible Body’ means for a:
 government department, the Accountable Officer; and
 every other public sector agency, the board
In the event that a person or body is declared to be an authority for the purposes of the
definition of ‘authority’ in section 3 of the FMA, anything in these Directions applying or
referring to a Government Department applies or refers also to that person or body, unless
a Direction explicitly provides otherwise.
Direction – Abbreviations
‘AASB’ means Australian Accounting Standards Board.
‘ATO’ means Australian Taxation Office.
‘BFMG’ means the Budget and Financial Management Guide.
‘CFAO’ means Chief Finance and Accounting Officer.
‘CFO’ means Chief Finance and Accounting Officer.
‘DTF’ means the Department of Treasury and Finance.
‘FBT’ means Fringe Benefits Tax.
‘FMA’ means the Financial Management Act 1994.
‘FRD’ means Financial Reporting Directions.
‘GST’ means Goods and Services Tax.
Direction – Delegation
a) Pursuant to section 7 of the FMA, the Minister for Finance delegates to the Deputy
Secretary, Budget and Financial Management in DTF all relevant powers and functions
of the Minister in sections 8, 50 and 51 of the FMA as necessary for the Deputy
Secretary to:
 give Financial Reporting Directions;
 make Business Rules;
 determine the rate of commission payable in respect of payroll deductions for
health insurance (except in the case of Medibank);
 STIPULATE the form of the Model Financial Report referred to in Direction 4.2;
 require all Public Sector Agencies to include in the reports required by part 7 of the
FMA or by these Directions details relating to particular matters or things (whether
in doing so the Deputy Secretary is exercising the powers and functions in sections
8, 50 or 51 of the FMA);
 provided that those Directions, rules or requirements are not inconsistent with
anything in these Directions, and
 Exercise any power referred to in section 41A of the Interpretation of Legislation
Act 1984 in respect of any Financial Reporting Direction, Business Rule,
determination, stipulation or requirement.
b) At least annually, a Financial Reporting Direction will be given stipulating which
Australian accounting standards (AAS’s and AASB standards) and Urgent Issues Group
Consensus Views are applicable for a particular reporting period.
2
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
c) Pursuant to section 7 of the FMA, the Minister for Finance delegates to each
Accountable Officer all relevant powers and functions of the Minister in section 8 of
the FMA as necessary for the Accountable Officer to determine the rate of
commission payable in respect of voluntary deductions other than for health
insurance.
Direction – Exemptions
The Minister for Finance may by written direction exempt persons or things, or a class of
persons or things in a specified case or class of case, from the provisions of the Directions,
whether unconditionally or on specified conditions or conditions additionally imposed and
either wholly or to such an extent as is specified or otherwise determined.
Where an exemption is sought, the application for exemption must be in writing, state the
reasons why the exemption is necessary and include specification of proposed alternative
action or procedures.
Alternative action or procedures must not be implemented until approved by the Minister
for Finance.
Each Accountable Officer must maintain a register of exemptions granted by the Minister for
Finance and make the register available for inspection by the Auditor-General.
Exemptions will be evaluated on a case-by-case basis by DTF.
Further information on Exemptions can be located on the Department of Treasury and
Finance website (http://dtf.vic.gov.au). Only agencies that are connected to the Victorian
Government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.
1.2
Background
Structure of the Directions
The Directions have been drafted in consideration of leading edge financial management
practices.
The Directions are now based around three key components of sound financial management
as illustrated below.
Key components of leading edge
financial management
Financial
management
governance and
oversight
Financial
management
structure,
systems, policies
and procedures
Financial
management
reporting
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
3
Financial management governance and oversight
Governance is about the processes by which a public sector agency is directed, controlled
and held to account. The Directions on financial management governance and oversight set
standards for Public Sector Agencies, which should be incorporated as fundamental
elements in an overall governance framework.
Financial management structure, systems, policies and procedures
The Directions for financial management structure, systems, policies and procedures set
standards for all Public Sector Agencies to achieve sound systems of internal control to
support financial management.
Financial management reporting
The Directions for financial management reporting set standards for Public Sector Agencies
to assist them in measuring and managing performance and to ensure financial
management reporting is consistent with applicable statutory reporting obligations.
Presentation of each Direction
Each Standing Direction is comprised of the following:
 Background – (where relevant) this is an explanatory section, which seeks to provide the
user with an understanding of the compliance obligation;
 Direction – A statement which sets out the compliance obligation (this is mandatory in
nature);
 Procedure – this sets out the method of achieving the compliance obligation and is
mandatory in nature; and
 Guidelines – these serve to explain and clarify the underlying principles and objectives of
the Direction and provide any relevant information to enable the user to interpret the
requirements in the correct context.
The Guidelines are not mandatory in application and are to be used as reference only.
 Further supplementary material – where appropriate. This information can be found on
the Department of Treasury and Finance website (http://dtf.vic.gov.au). Please contact
your portfolio coordinator directly if you have problems with access. This supplementary
material in the Directions is denoted by the following symbol
. This was previously
referred to as ‘Guidance Material’.
The supplementary material is not mandatory in application and is to be used as reference
only.
 Rules – these serve to explain and clarify the underlying principles and objectives of
specific Directions and is denoted by the following symbol
. They also enable the user
to interpret the requirements in the correct context.
Rules are to be used in assessing compliance with specific Directions.
4
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
2.
Financial management governance and oversight
‘Broadly speaking, corporate governance generally refers to the processes by
which organisations are directed, controlled and held to account’1, and is
underpinned by principles of openness, integrity and accountability. ‘Governance
is concerned with structures and processes for decision-making, accountability,
control and behaviour at the top of organisations’2. ‘It influences how the
objectives of an organisation are set and achieved, how risk is monitored and
assessed and how performance is optimised.’3
Strong governance and oversight of a public sector agency’s financial management is a core
component of its broader governance framework.
The Directions on financial management governance and oversight have been prepared in
light of the principles of good corporate governance and best practice recommendations for
listed companies and in line with community expectations, which set a necessarily high
standard for Public Sector Agencies.
2.1
Financial code of practice
Background
Public sector agencies are expected to develop and implement a financial code of practice
on matters related to the probity of their financial management.
The code of practice will be public sector agency specific and will reflect existing public
sector agency policies. It will also alert or serve to remind personnel of the relevant external
requirements applicable to the public sector agency.
Direction
Public sector agencies must implement and maintain a financial code of practice.
Procedure
a) A public sector agency is required to have a financial code of practice setting out a
cohesive statement of the public sector agency’s internal processes to ensure probity
in the public sector agency’s financial management. If the public sector agency has an
existing Code of Practice, this will need to be reviewed against the requirements in
this Direction and updated as required to ensure compliance.
1
ANAO Discussion Paper, Corporate Governance in Commonwealth Authorities and
Companies, 1999
2
IFAC, Governance in the Public Sector: A Governing Body Perspective, 2001
3
ASX Corporate Governance Council, Principles of Good Corporate Governance and Best
Practice Recommendations, March 2003
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
5
b) Matters to be covered in the financial code of practice include:
 Independence;
 Tendering;
 Procurement;
 Conflicts of interest;
 Use of credit cards;
 Personal relationships with the public sector agency’s customers and providers;
 Integrity;
 Accountability;
 Corporate opportunities;
 Confidentiality;
 Fair dealing;
 Protection and proper use of the public sector agency’s assets; and
 Encouraging the reporting of unlawful or unethical behaviour.
c) Each public sector agency is required to develop and maintain an appropriate internal
management structure with responsibility for:
 Implementing the code of practice;
 Determining the employees required to comply with the code of practice (‘relevant
employees’) and reviewing this on an annual basis;
 Communicating the requirements to all relevant employees and the initial
management of any queries raised by those employees;
 Requiring and monitoring relevant employees’ compliance with the code of
practice; and
 Initiating appropriate action for breaches of the code of practice.
2.2
Financial governance
Direction
A public sector agency must establish robust and transparent financial governance policies
and procedures directed to the oversight of its financial management which should be
incorporated as fundamental elements of a public sector agency’s overall governance
framework.
Particular attention must be paid to the systems of financial reporting, risk management,
internal control and the adequacy of management reporting.
Procedure
a) The governance and oversight of the financial management of a public sector agency
is the responsibility of the Responsible Body.
6
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
b) The Responsible Body, in its financial oversight and governance role is to:
 review all financial reports that are provided to parties external to the public
sector agency, prior to their release but subsequent to the approval of the reports
by the CFAO in accordance with Direction 4.3(c);
 work with management to develop the strategic directions for the public sector
agency, set performance indicators, set performance targets, review performance
management information and reports against those targets;
 monitor and oversee the financial performance of the public sector agency on an
ongoing basis ensuring appropriate human and financial resources are available;
 oversee and ensure that procedures are in place that will result in effective and
efficient budgeting;
 ensure a balance of authority so that no single individual has unfettered powers
over the finances of the public sector agency;
 ratify the appointment or removal of the CFAO, where appropriate;
 Review, ratify and oversee the public sector agency’s systems of risk management
and financial internal controls;
 approve and monitor the progress of major capital expenditure, capital
management, acquisitions and divestitures;
 meet often enough to undertake its financial governance role effectively, if it
comprises more than one person;
 establish appropriate arrangements to ensure that public funds and resources are
used economically, efficiently, effectively, with due propriety, and in accordance
with the statutory or other authorities that govern their use; and
 undertake an annual review of its own performance in respect of its financial
governance.
see Guideline 1 below
c) The Responsible Body may, at its sole discretion, formally delegate some of its
responsibilities as set out in (b) to an Audit Committee, Finance Committee or
equivalent. However:
 this will not diminish the ultimate responsibility of the Responsible Body to
oversee the financial performance of the public sector agency and to ensure the
integrity of the financial reporting; and
 the Responsible Body is to retain oversight responsibility for the relevant actions
and activities of its delegates.
d) For public sector agencies (excluding government departments), on an annual basis
the Accountable Officer and the CFAO should formally state to the Responsible Body
that:
 the public sector agency’s financial reports present fairly, in all material respects,
of the public sector agency’s financial condition and operational results in
accordance with the requirements of the FMA including the Directions;
 the financial report is founded on a sound system of risk management and internal
compliance and control which implements the policies adopted by the Responsible
Body; and
 the public sector agency’s risk management and internal compliance and control
system is operating efficiently and effectively in all material respects.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
7
Audit committees
e) Each public sector agency must, unless an exemption has been obtained, appoint an
audit committee to oversee and advise the public sector agency on matters of
accountability and internal control affecting the operations of the public sector
agency. Government departments are not eligible for an exemption.
see Guideline 2 below
f) At least two members of the audit committee must be independent and these
members are to be identified as independent in the public sector agency’s annual
report.
see Guideline 3 below
g) Where the Responsible Body is a board the audit committee is to be comprised of at
least three members all of whom are non-executive directors and a majority of whom
are to be independent.
h) If the Responsible Body is supported in its financial management responsibilities by an
audit committee and/or any other committee:
 the committee should have a Charter that clearly sets out the role and
responsibilities, composition, structure and membership requirements;
 the Charter must be approved by the Responsible Body and provided to each
member of the committee; and
 the Charter must be formally reviewed by the Audit Committee periodically, but at
least every three years, with recommendations for updates approved by the
Responsible Body.
i) Each committee is to:
 be adequately resourced;
 be of sufficient size, independence and technical expertise to discharge its
mandate effectively;
 undertake an annual review of its own performance and report the results of that
review to the Responsible Body;
 be fully accountable to the Responsible Body;
 meet often enough to discharge its role and responsibilities effectively and no less
than four times a year; and
 minute the meetings reflecting work done by the committee to address its roles
and discharge its responsibilities. The minutes are to be provided to the
Responsible Body at the next meeting or, where the Responsible Body is not a
board, a defined and agreed interval, after each audit committee meeting.
see Guideline 4 below
j) Where the Responsible Body has been exempted from creating an audit committee
the Responsible Body must:
 actively assume all the usual roles and responsibilities of an audit committee
including those responsibilities specifically set out in these Directions; and
 take appropriate steps to ensure these responsibilities are fully discharged.
see Guideline 5 below
8
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
k) The Accountable Officer and the CFAO are not to be members of their own public
sector agency’s audit committee but are to attend relevant aspects of audit
committee meetings by standing invitation.
l) Unless an exemption has been obtained the Chairperson of the audit committee is to
be one of the independent members of that committee.
m) Unless an exemption has been obtained the Chairperson of the Responsible Body
must not also be the Chairperson of the audit committee.
Member qualifications of audit committees
n) All members of a public sector agency audit committee must have and maintain:
 basic financial literacy;
 reasonable knowledge of the public sector agency’s own risks and controls;
 integrity, objectivity, accountability, honesty and openness;
 dedication of time and effort;
 an enquiring mind;
 independence of judgement;
 relevant industry knowledge; and
 business experience in the public or private sector.
see Guideline 6 below
o) Members of an audit committee who do not have the requisite level of financial
literacy and/or industry knowledge at the time of their appointment must undertake
induction training before attending an audit committee meeting and additional
training, as appropriate, to raise their competency to the level described in (n) above.
As a minimum requirement the prescribed level of competence must be achieved
within the first six months of membership of that committee.
p) At least one member of an audit committee must have appropriate expertise in
financial accounting or auditing.
see Guideline 7 below
q) All members of audit committees are required to take appropriate and timely action
to ensure they have the requisite understanding of the public sector agency’s
structure, operations and financial management risks to enable them to discharge
their responsibilities.
r) The CFAO is to provide all newly appointed Audit Committee members with all
necessary and relevant information regarding the Committee’s responsibilities and
the public sector agency’s operations and background to enable them to understand
the public sector agency and their duties and responsibilities. The CFAO is to agree
which information is necessary and relevant with the Audit Committee Chairman.
s) Membership of the audit committee is to be reviewed by the Responsible Body on a
periodic basis, and at least every three years.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
9
Relationship of audit committee with management, advisors and experts
t) The audit committee must have direct access to the internal and external auditors
without management present.
u) The audit committee must have:
 Direct access to the Accountable Officer, the CFAO and the public sector agency’s
management, through the Accountable Officer, when required; and
 The right to seek explanations and additional information.
v) The audit committee must be able to seek independent, expert advice to assist it in
undertaking its oversight responsibilities.
Requirements for government departments
w) For government departments, on an annual basis the CFAO should formally state to
the audit committee and the Accountable Officer that:
 the financial reports present fairly, in all material respects, of the public sector
agency’s financial condition and operational results in accordance with the
requirements of the FMA including the Directions;
 the financial report is founded on a sound system of risk management and internal
compliance and control which implements the policies adopted by the
Accountable Officer (as Responsible Body); and
 the Department’s risk management and internal compliance and control system is
operating efficiently and effectively in all material respects.
x) Government departments are required to monitor and report to the Minister for
Finance, through the Department of Treasury and Finance, on their compliance with
the requirements of the FMA and the Directions.
y) Government departments are required to obtain and report to the Minister for
Finance, through the Department of Treasury and Finance, on compliance with the
requirements of the FMA and the Directions of all public sector agencies within their
portfolio.
z) Each government department must endeavour to identify instances of
non-compliance with taxation legislation by itself or a public sector agency within
their portfolio and it must inform the Minister for Finance, through the Department of
Treasury and Finance, of instances of non-compliance so identified.
see Guideline 8 below
Guidelines
Guideline 1
i. External financial reports reviewed by the Responsible Body will typically include:
 annual budgets, forward estimates and forecasts; and
 other related reports, in particular significant financial reporting to external parties
including other Public Sector Agencies.
10
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
ii. It is recommended that the Responsible Body’s oversight of a public sector agency’s
financial performance be based on periodic financial information and associated
performance indicators. In discharging its responsibilities it is anticipated that the
Responsible Body will:
 monitor performance against targets incorporated into budget papers, business
plans, targets, forecasts and similar;
 make appropriate enquiries to understand the reasons and implications for
divergences between actual and expected performance;
 ensure it has sufficient information to assess management initiatives, to correct or
mitigate unfavourable results and to reinforce or enhance favourable results;
 approve and monitor management’s actions to correct or mitigate unfavourable
results; and
 review and authorise the release of financial information to ensure it:
– is factual;
– does not omit material information; and
– is expressed in a clear, balanced and objective manner that allows stakeholders
to assess the impact of the information on their decision-making.
iii. It is recommended that where the Responsible Body has a Charter or equivalent
document, it should clearly articulate the role of the Responsible Body and the
responsibility and accountability relationships between the Minister, the Responsible
Body, the Accountable Officer and the CFAO in financial management.
iv. There is nothing in these Directions that prevents the operational aspects of the
Responsible Body’s oversight and governance role being delegated to management in
accordance with Direction 2.4.
Guideline 2
i. An audit committee may be a committee of the Responsible Body or be appointed by
the Responsible Body to undertake, among other functions, the oversight of:
 financial performance;
 the financial reporting process;
 the scope of work, performance and independence of the internal auditor;
 ratification of the engagement and dismissal by management of any chief internal
audit executive;
 the scope of work and performance of the external auditor;
 the operation and implementation of the risk management framework;
 matters of accountability and internal control affecting the operations of the public
sector agency;
 The effectiveness of management information systems and other systems of
internal control;
 the acceptability, disclosure of and correct accounting treatment for significant
transactions which are not part of the public sector agency’s normal course of
business;
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
11
 the sign-off of accounting policies; and
 the specific matters to which it is required to direct its attention as set out in
2.3 Financial Risk Management, 2.5 Internal Audit and 2.6 External Audit.
ii. The role may, at the public sector agency’s discretion, be extended to cover other
matters appropriate for the consideration of such a committee.
Guideline 3
i. With respect to committees, an independent person is one who is independent of the
management of the public sector agency, and:
 within the last three years has not been employed in an executive capacity by the
public sector agency or a related organisation or been a director after ceasing to
hold such employment;
 within the last three years, has not been a principal of a material professional
advisor or a material consultant to the public sector agency or a related
organisation, or an employee materially associated with the service provider;
 is not a material supplier or customer of, the public sector agency, or a related
organisation or an officer or otherwise directly or indirectly associated with a
material supplier or customer;
 has no material contractual relationship with the public sector agency or a related
organisation other than as committee member of the public sector agency;
 has not served on the Responsible Body (if it is a board) or the committee for a
period which could, or could reasonably be perceived to materially interfere with
the person’s ability to act in the best interests of the public sector agency; and
 is free from any interest and any business or other relationship which could, or
could reasonably be perceived to, materially interfere with the committee
member’s ability to act in the best interests of the public sector agency.
ii. Family ties and cross-directorships may be relevant in considering interests and
relationships which may compromise independence.
iii. In the context of these guidelines ‘materiality’ should be considered from the
perspectives of both the public sector agency and the individual committee
member/candidates.
Guideline 4
i. The role and responsibilities of each committee is to be set out in its Charter and
should be:
 sufficiently detailed to ensure there is:
– no ambiguity;
– clear guidance on key aspects of the committee’s operations; and
– no overlap in the activities of individual committees.
 regularly reviewed for relevance and consistency with the needs of the
Responsible Body.
12
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
ii. In addition:
 an annual programme is to be prepared detailing the number, date, time and key
matters for attention at each meeting;
 agendas and papers should be prepared and circulated in advance of each
Committee meeting and in sufficient time for members of the committee to read
and absorb their contents; and
 committee members should undertake an annual evaluation of the performance
of the Committee and report their conclusions to the Responsible Body.
Guideline 5
Where an exemption to create an audit committee has been granted, the Responsible Body
itself should actively seek to evidence the discharge of all the public sector agency’s financial
oversight and governance obligations. Meeting the requirements of this Direction may
include the Responsible Body meeting specifically in a separate meeting to address financial
management issues.
Guideline 6
With respect to the qualifications of members of the audit committee:
i. Basic financial literacy is defined as the ability to read and understand financial
statements, including financial statements, including the income statement, balance
sheet, statement of recognised income and expense and cash flow statement. This
may also include an understanding of the following, where a public sector agency is
subject to their impact:
 generally accepted accounting principles (GAAP);
 Financial Reporting Directions;
 budget memoranda; and
 Budget and Financial Management Guide (BFMG) published by the Department of
Treasury and Finance.
ii. All Audit Committee members should have access to updated copies of the above
material and undertake periodic financial reporting and other relevant
updates/training to ensure they stay current as to relevant developments in
accounting and finance within the public sector agency.
Guideline 7
Appropriate expertise may have been developed from one or a combination of:
 relevant past employment experience in an accounting profession;
 Requisite professional qualification in accounting; or
 comparable experience with financial oversight responsibilities.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
13
Guideline 8
The Department of Treasury and Finance will provide detailed in Taxation Compliance Rules
to assist public sector agencies to meet their compliance obligations in relation to:
 Australian Business Number (ABN);
 Goods and Services Tax (GST);
 Pay As You Go (PAYG);
 Fringe Benefits Tax (FBT);
 Deductible Gift Recipient (DGR);
 Income Tax Exempt Charity (ITEC); and
 Energy Credits Scheme.
Each Public sector agency is accountable for meeting its Commonwealth tax obligations in its
own right.
More information on the Taxation Compliance Rules can be found on the Department of
Treasury and Finance website at http://dtf.vic.gov.au
2.3
Financial risk management
Background
Enterprise-wide risk management establishes processes for identifying, analysing,
monitoring and managing these risks and opportunities which could prevent a public sector
agency from achieving its business objectives. It includes making links between risks and
rewards and resource priorities. Risk management involves putting control activities in place
to manage risk and opportunities throughout the public sector agency by developing risk
management plans which cover the full range of a public sector agency’s activities including
its financial management.
This Direction assumes that a public sector agency has taken appropriate steps to introduce
an approach to enterprise-wide risk management that is appropriate to the public sector
agency and requires that a sufficient level of attention be given to the risks associated with
its financial management.
Direction
An effective approach for the identification, assessment, monitoring and management of
financial management risks must be established and maintained as part of the public sector
agency’s overall risk management framework.
Procedure
a) The Responsible Body must:
 ensure there is a financial risk management policy and internal control system in
place which addresses the risks associated with the financial management of the
public sector agency and which clearly articulates the public sector agency’s
expectations and internal accountabilities for management of those risks including
the roles and respective accountabilities of the Responsible Body, audit
committee, management and internal audit;
14
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
 ensure management has implemented an effective framework to proactively
identify, assess, monitor, manage and report, on an ongoing basis, the significant
financial risks to which the public sector agency is exposed to as a result of, and in
the course of its activities and responsibilities;
 have a clear understanding of the nature, likely impact and potential consequences
of the significant financial management and related risks facing the public sector
agency and be informed of any significant changes in these;
 on a regular basis and no less than annually, critically appraise and challenge the
financial risk profile prepared by management to enable it to make an informed
assessment about its completeness and accuracy and the appropriateness of the
arrangements in place for managing and monitoring those risks;
 provide clear guidance on the level and categories of financial management risk it
regards as acceptable for the public sector agency;
 provide oversight and supervision of financial management risks and the
implementation of the related management plans/treatment strategies; and
 regularly, and no less than annually, review the effectiveness of the public sector
agency’s system of risk management and internal control.
b) A public sector agency must implement and maintain an effective and ongoing
process to identify risks associated with the financial management of the public sector
agency, assess their likelihood and potential impact under a varied set of assumptions
and proactively manage those risks. This is expected to include a framework for:
 identifying the financial risks related to the public sector agency’s objectives as
detailed in its strategic plan;
 identifying new financial risks as they emerge and changes in previously identified
risks;
 deciding what initiatives, programs or other actions are needed to deal with the
financial risks in a positive, proactive, cost effective way;
 identifying or designing and implementing financial controls to ensure the actions
are carried out as planned;
 ensuring appropriate information systems and systems of internal control exist to
facilitate reporting on financial risk exposures and mitigation strategies;
 monitoring the implementation and operation of the financial risk management
process and reporting to the governing body; and
 the preparation of a list of annual action items to be reviewed and discussed by
the Responsible Body of the public sector agency.
Guideline
For risk management requirements, refer to Direction 4.5.5 Risk Management Compliance.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
15
2.4
Authorisations
Direction
Each public sector agency must establish and maintain authorisations covering the overall
financial management of the public sector agency, and must establish and maintain
authorisations covering the creation of financial obligations (including contingent liabilities
and obligations) on behalf of the public sector agency.
These authorisations must ensure that financial management and the creation of financial
obligations are undertaken by staff with appropriate levels of authority and understanding of
business operations. Authorisations must be to positions rather than specific individuals, and
must be to employees of the public sector agency.
For the purposes of this Direction:
‘Department’ means a department within the meaning of the Public Administration
Act 2004;
‘Office’ means an office specified in section 16(1) of the Public Administration Act
2004;
‘Responsible Body’ in respect of a Department means the Minister, or the Ministers
jointly if there is more than one Minister, of that Department;
‘Responsible Body’ in respect of an Office means the Minister for the time being
administering the enabling legislation for that Office;
‘Responsible Body’ in respect of all public sector agencies that are not, for the
purposes of this Direction, either Departments or Offices, means the board or, in the
absence of a board, the person or body that is charged with the oversight of the
public sector agency’s operations; and
‘Secretary of that Department’ means ‘Accountable Officer of that Department’.
Requirements for Departments
Until Departments transition to the Victorian Government Purchasing Board’s (VGPB) new
policy framework that came into operation on 1 July 2013, the Responsible Body in respect of
that Department may delegate to the Secretary of that Department some or all of the
powers and responsibilities of a Responsible Body given by this Direction, but only up to the
accreditation limit applicable to that Secretary’s Department as determined by the VGPB’s
purchasing accreditation of that Department.
After a Department has transitioned to the VGPB’s new policy framework, the Responsible
Body in respect of that Department may:
a) confer any limit on Departmental officers; and/or
16
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
b) delegate to the Accountable Officer of that Department the power to give financial
authorisations for the creation of obligations for any amount up to but not exceeding
$10 million;
and may also:
c) delegate to the Accountable Officer some or all of the responsibilities of the
Responsible Body under this Direction except the power to give financial
authorisations exceeding $10 million.
Requirements for Section 16(1) Public Administration Act 2004 Offices
The Responsible Body in respect of an Office may:
a)
confer any limit on employees of the Office; and/or
b)
delegate to the person with the functions of a public service body Head in respect of
the Office (as determined by section 16 of the Public Administration Act 2004) the
power to give financial authorisations for the creation of obligations for any amount
up to but not exceeding $10 million;
and may also:
c)
delegate to the person with the functions of a public service body Head in respect of
the Office (as determined by section 16 of the Public Administration Act 2004) some
or all of the responsibilities of the Responsible Body under this Direction except the
power to give financial authorisations exceeding $10 million.
Procedure
a) The Responsible Body must give clear financial authorisations to specific positions
within the public sector agency.
b) All authorisations must be given so as to cease immediately upon the change in name
of the specified position or a substantial and material change in the duties of the
position.
c) The authorisations are to be retained pursuant to the relevant legal requirements for
document retention and record keeping.
d) Where more than one financial authorisation is assigned to a particular position
internal control procedures must not be compromised.
e) A register of financial authorisations must be established and maintained.
see Guideline below
f)
The Responsible Body must review the public sector agency’s authorisations and the
register of financial authorisations annually and make any necessary changes.
g) The Responsible Body must at least annually review the categories and types of
financial authority and make any necessary changes.
h) A financial authorisation cannot be given to another position by the person
authorised.
i) An authorisation cannot be given to a contractor or consultant.
j) Audit trails must be maintained to demonstrate compliance with this direction.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
17
Guideline
The register of financial authorisations should contain the following details:

transaction type, for example financing, investing and operational types;

list of positions holding financial authority for each transaction type;

dollar caps for each transaction or authorisation type;

list of staff names holding positions (this should be regularly updated and
communicated to all relevant staff including the holders of authorised positions
and members of the financial management team); and

specimen signatures for each holder of an authorised position. Signatures may be
in an electronic format.
Mechanisms must be in place to enable continuous and efficient running of the public sector
agency in the absence of the holders of an authorised position. A person acting in a position
has the authority of that position.
In the event of a total restructure of a public sector agency (for this purpose ‘total
restructure’ means a restructure affecting 50 per cent or more of the positions in the public
sector agency), financial authorisation should be reassessed and reapproved within one
calendar month.
18
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
2.5
Internal audit
Background
Internal audit is commonly defined as an independent appraisal activity within a public
sector agency, for the review of operations as a service to the Responsible Body and
management. It is a control which functions by measuring and evaluating the effectiveness
of other controls.
Internal audit is a key assurance mechanism available to the Responsible Body to support
the discharge of its governance and oversight responsibilities.
Public sector agencies are required to establish, maintain and resource an internal audit
function. The work is to be carried out by suitably qualified staff, independent of
management and free of operational duties.
Where an exemption is granted the Responsible Body must take alternative steps to secure
an appropriate level of assurance from alternative in-house assurance activities and/or
compliance functions that are sufficiently robust and rigorous.
For simplicity the term internal audit is used in these Directions to encompass both in-house
internal audit and the outsourcing of the internal audit function to an appropriately
qualified third party.
Direction
Each public sector agency must, unless an exemption has been obtained, establish and
maintain an adequately resourced independent internal audit function appropriate to the
needs of the public sector agency. Government departments are not eligible for an
exemption.
Procedure
a) An internal audit charter is to be approved by the Audit Committee and is to:
 provide for the internal audit function to report to senior management;
 provide for the internal auditor to have direct access to the Chairman of the audit
committee;
 provide for internal audit function to have full, free and effective access at all
reasonable times to all records, documents and employees of the public sector
agency and the right to seek information and explanations; and
 set out the independent status of the internal audit function and its personnel.
b) An annual internal audit plan is to be developed by the internal auditor to address
relevant elements of the public sector agency’s risk profile.
c) The internal audit plan is to be approved by the audit committee.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
19
d) On an annual basis the audit committee is to:
 review the adequacy and focus of the internal audit work plan and its fit with the
public sector agency’s risk profile and the work of the external auditors;
 review the internal audit function’s performance, its authority, the adequacy of its
resources and the proposed allocation of those resources;
 take steps to confirm that the internal auditor has not been unduly influenced by
management or experienced any problems with management; and
 meet separately and privately with management and the internal auditors if
necessary to ensure free, frank and open communications.
e) In addition the audit committee should make appropriate enquiries to:
 approve and review management’s proposals as to how the public sector agency
plans to respond to advice received from the internal auditor and direct
management accordingly;
 monitor actions taken by management to resolve issues raised by internal audit;
and
 advise management to adopt and address the accepted recommendations from
internal audit on a timely basis.
see Guideline below
Guideline
Specific matters to which consideration will be given in determining whether an exemption
is to be granted include:
 the public sector agency’s size and scale;
 the public sector agency’s complexity/diversity;
 the nature of the public sector agency’s business in terms of the risk exposure of the
business;
 its overall risk profile;
 its financial risk management profile;
 relevant external issues;
 public sector agency changes;
 the history of past issues and incidents;
 the existence of viable alternative mechanisms to provide adequate assurance on
matters of compliance and the operation of internal controls; and
 the alternative assurance and compliance mechanisms on which the Responsible Body
proposes to rely.
20
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
2.6
External audit
Background
Under the Audit Act 1994, the Auditor-General is responsible, on behalf of the Parliament
for the external audit of the financial operations and resource management of the Victorian
public sector. Accordingly the primary role of the Auditor-General is to provide information
and audit assurance to the Parliament, independently of public sector agencies and the
Government.
An open, honest and effective working relationship will facilitate the work of the
Auditor-General and maximise the benefits of the external audit process for the public
sector agency.
Direction
Public sector agencies must establish and maintain a constructive, open working
relationship with the Auditor-General and his duly appointed agents and representatives.
Procedure
a) The audit committee is required to take appropriate steps to ensure all members have
a clear and detailed understanding of and are satisfied with the:
 scope of work to be undertaken by the external auditor;
 audit process; and
 overall audit approach.
b) All external audit reports including performance audits completed by the
Auditor-General or his or her agent are to be considered by the audit committee.
c) The Auditor-General or his or her representative is to be invited to attend relevant
meetings, or relevant parts of meetings, of the audit committee as an observer.
d) At appropriate times during the course of each year the audit committee is to meet
with the Auditor-General or his or her agent or representative to:
 discuss the proposed audit objectives with a view to eliminating duplication of
audit activities with the internal audit function;
 obtain a briefing on the proposed external audit process;
 understand the Auditor’s views on any accounting issues which may impact on the
financial statements; and
 discuss the outcomes of the external audit.
e) The audit committee is to meet privately with the Auditor-General or his or her agent
at least once a year to ensure free, frank and open communication.
f) The audit committee is to:
 recommend how the Responsible Body should act on advice received from
external auditors and ensure management take appropriate action;
 monitor actions taken by management to resolve issues raised by external audit;
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
21
 monitor whether accepted recommendations of the external auditors are adopted
and addressed by management on a timely basis;
 investigate the reasons for any material adjustments to the accounts; and
 review the impact of actions taken by management intended to resolve issues.
g) The Responsible Body should ensure that all staff in the public sector agency adopt a
cooperative and conservative approach with the external auditors on relevant
auditing matters.
22
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
3.
Financial management structure, systems, policies
and procedures
A public sector agency’s system of internal control is designed to support the effectiveness
and efficiency of operations, to deliver reliable internal and external reporting, and achieve
compliance with laws and regulations. Underpinning the system of internal control is the
financial management structure, systems, policies and procedures that contribute to reliable
financial information and to the safeguarding of assets, including prevention and detection
of fraud.
The Accountable Officer and, for public sector agencies other than government
departments, the Responsible Body are responsible for the system of internal control.
The Directions for financial management structure, systems, policies and procedures set
minimum standards for public sector agencies to achieve sound systems of internal control
to support financial management.
3.1
Financial management structure
3.1.1
Public sector agency financial management team structure
Direction
The CFAO must ensure that there is a structure for the financial management team with
clearly defined roles and responsibilities to adequately support sound financial
management.
Procedure
a) Roles and responsibilities for positions within the financial management team
structure must be defined and documented to ensure the most effective and efficient
allocation of tasks and resources. Prerequisite skills, qualifications and experience for
each position must also be defined and documented.
b) Financial management is defined to encompass:












budgeting;
financial reporting;
accounts receivable/payable;
procurement;
taxation;
asset management;
financial systems;
accounting policies;
cash management;
project management – financial aspects;
payroll; and
management reporting.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
23
3.1.2
Chief Finance and Accounting Officer (CFAO)
Direction
The Responsible Body must ensure financial management leadership is secured from a
suitably experienced and qualified Chief Finance and Accounting Officer (CFAO).
Procedure
a) The prerequisite skills, qualifications and experience for the CFAO must be clearly
defined and documented together with position description, role, duties, rights and
responsibilities.
see Guideline 1 below
b) The CFAO must endorse financial reports submitted to senior management in any
public sector agency, including reports submitted to the Responsible Body, and peak
boards and management groups.
see Guideline 2 below
Guideline 1
The CFAO should hold at least tertiary level accounting qualifications and membership of the
Institute of Chartered Accountants in Australia (ICAA), CPA Australia, National Institute of
Accountants (NIA), or equivalent.
Guideline 2
The purpose of the CFAO review is to ensure that the financial information presented in the
reports is endorsed as to its completeness, reliability and accuracy.
3.1.3
Policies and procedures
Direction
Public sector agencies must establish and maintain documented policies and procedures to
set out requirements for complete and accurate processing of authorised transactions.
Procedure
a) The Responsible Body must ensure there are formal, documented policies and
procedures in relation to financial administration and management.
see Guideline below
b) There must be effective and efficient communication of policies and procedures to all
officers either manually or electronically.
c) There must be quality assurance mechanisms in place for monitoring, review and
assessment of compliance with policies and procedures.
Guideline
i. The policies and procedures for financial administration and management should
incorporate, the following:
 legislation under which the public sector agency operates;
 public sector agency financial management structure;
 chart of accounts of the public sector agency;
24
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
 policy and procedure details for areas of financial management covered by these
Directions, including use of information technology related to financial matters,
where appropriate;
 standard forms to be used in financial management;
 A list of exemptions obtained from the Minister for Finance and all relevant
supporting documentation;
 Accounting Standard Pronouncements of the Australian Accounting Standards
Board; and
 conflicts of interest details.
ii. Policies should be ratified by the Responsible Body or other delegate approved by the
Responsible Body. Procedures should be ratified by the CFAO.
iii. There should be sound control over policies and procedures to ensure only authorised
versions are in use at any point in time.
iv. There should be a process for periodic review of financial management policies and
procedures (at least every two years, or more frequently at the discretion of the
Responsible Body). The review should be designed to continuously improve the
policies and procedures and reflect changes in the business/operations, technologies
and best practice trends in financial management.
3.1.4
Chart of accounts
Direction
Public sector agencies must establish and maintain a chart of accounts to accurately reflect
transactions in the financial records for management decision-making purposes and to
ensure compliance with external reporting requirements.
Procedure
a) The CFAO or an approved delegate is responsible for the development and
maintenance of a chart of accounts.
see Guideline below
b) There must be effective and efficient communication of the chart of accounts to all
officers within the public sector agency, either manually or electronically.
c) A government department must use any chart of accounts issued by the Minister for
Finance as a basis for aligning its activities for the purposes of consistency in
reporting.
d) There should be an explanatory note to each account within the chart of accounts
that describes the nature and purpose of the account, as a means to delineate the
boundary lines between capital, revenue and expense items and assist categorisation
of transactions.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
25
Guideline
The chart of accounts should be:
 properly controlled (it is recommended that all changes be approved by the CFAO or
their delegate);
 maintained and updated in a timely manner reacting to the needs of the public sector
agency;
 aligned with the objectives of the public sector agency;
 aligned with the consolidated reporting requirements of the Department of Treasury and
Finance;
 sufficiently detailed and logically structured to allow useful and timely management
reporting and financial reporting consistent with legislative requirements;
 in the case of Government Departments provide for effective budgeting, reporting and
monitoring of the output management principles and practices; and
 A relationship table between the chart of accounts and that issued by the Minister for
Finance should be established and maintained.
3.1.5 Managing outsourced financial services
Direction
Public sector agencies must ensure effective management of outsourced financial functions
to obtain the required levels of service and maintain compliance with the FMA, the Financial
Management Regulations 2004 and these Directions.
Procedure
a) Prior to outsourcing financial functions either in full or part, the costs and benefits
must be analysed and the outsourcing decision approved by the Responsible Body.
see Guideline below
b) The financial services to be provided under an outsourced arrangement must be able
to be detailed in a contract, service level agreement or equivalent, together with
performance indicators and measures.
c) Performance against the contract, service level agreement or equivalent, must be
regularly monitored and reviewed, including a review (at least annually) by the
Accountable Officer, or delegate such as the CFAO. If the Accountable Officer is not
the Responsible Body, the results of the review should be reported to the Responsible
Body.
d) Outsourced financial functions must be subject to internal and external audit scrutiny.
Guideline
i. Different aspects of the financial function can be outsourced. Examples of outsourced
financial functions may include: actuarial services, investment consulting, debt
collection and maintenance of the ledger or other financial systems. However, the
public sector agency remains responsible for ensuring that the third party provider is
meeting the requirements of the FMA, these Directions and any other relevant
legislation.
26
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
ii. Before outsourcing a cost-benefit analysis should be undertaken. The cost-benefit
analysis should include.
 the costs and basis for estimating the cost;
 the benefits and basis for estimating the benefits;
 an assessment of planned non-financial benefits;
 potential risks associated with outsourcing the function and how they will be
mitigated; and
 a recommendation for proposed future action.
3.2
Information technology systems
3.2.1 Information technology management
Direction
A public sector agency must ensure that the direction, strategy and use of information
technology in the public sector agency are consistent with and appropriate for its sound
financial management.
Procedure
a) The Responsible Body must review the use of information technology for financial
management on at least an annual basis.
see Guideline below
b) The Responsible Body must conduct or review (at least annually) an assessment of
information technology risks and their impact on financial management.
Guideline
This review is in relation to technology used for financial management and should include,
but not be limited to, whether:
 there are the appropriate skills available within the public sector agency, to support the
information technology environment and whether obtaining external support may be
necessary;
 the current level of reliance on information technology is still considered to be
appropriate;
 there are appropriate controls over information technology that is currently being
employed; and
 the impact of changes to financial applications and IT infrastructure has been adequately
assessed and understood.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
27
3.2.2 Information technology operations
Direction
The Responsible Body must strongly support information technology operations to support
financial management and make it as widely available as possible.
Procedure
a) At least annually, the public sector agency must formally assess the impact of
information technology that supports financial management not being available for an
extended period. This should include review and testing of a formally documented
disaster recovery plan and business continuity plan.
b) The public sector agency must ensure up-to-date backups are maintained for all
financial management systems and data being used.
see Guideline below
c) A register of licences for financial management software must be maintained. In
addition, regular audits or verification reviews of the register must be performed (at
least annually).
d) Error logs must be identified, reviewed and followed up regularly to monitor access to
and transactions through financial management systems.
e) Where financial systems are connected externally to the internet, controls must be in
place to prevent these connections from undermining system security. Controls may
include:
 firewalls;
 security logs; and
 encryption.
Guideline
i. The policy for the frequency of backups of financial management information should
be ratified by the Responsible Body (in accordance with Direction 3.1.3, Guideline (ii).
Backups should be taken at appropriate intervals based on the volume of data input
and criticality of information. As a guide, where financial transactions are processed
daily, daily backups should be taken.
ii. The backups should be stored in an off-site, secure location and be periodically
checked to ensure that the backups are being performed adequately (any backups
stored onsite should be kept in a fireproof safe and checked periodically).
iii. The public sector agency should ensure the backup cycle includes rotation and
periodic replacement of storage media.
iv. Annual backups should be stored for the period required under the Public Records
Act 1973, unless there is a requirement to store for a longer period.
28
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
3.2.3 Security
Direction
The financial management system must have levels of security to ensure that only
authorised people have access to transactions.
Procedure
On at least an annual basis, a formal assessment must be performed of whether financial
management information that is sensitive to the public sector agency and stakeholders is
appropriately controlled and secured. The adequacy of the following controls must be
considered:
 security policies;
 password controls, for both applications and operating platforms;
 segregation of incompatible duties and user access levels being commensurate with roles
and responsibilities; and
 restricted physical access to the computer room and other sensitive financial
management technology assets.
3.2.4 Development
Direction
The CFAO, in consultation with appropriate technical input, must regularly review and
address the developments in financial management systems needed to ensure the most
appropriate technological support for financial management practices.
Procedure
a) At least annually, a review of whether the use of spreadsheets, manual files or core
financial processes would be more efficiently or effectively conducted or delivered
through the use of a more formal application package or automated system must be
undertaken.
b) Public sector agencies must develop or adopt a formal information technology
development methodology for development of financial management systems and
technology.
see Guideline 1 below
c) For all proposed financial management system developments there must be a
business case that is approved by the information technology steering committee (or
Responsible Body or executive team, where an information technology steering
committee does not exist) and end users.
see Guideline 2 below
d) For all developments that proceed, there must be project management processes in
place including: status reporting of the project to the project sponsor.
see Guideline 3 below
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
29
Guidelines
Guideline 1
The methodology may be:
 Internally developed and applied across the public sector agency’s development projects;
or
 Be supplied by an external vendor as part of a specific project. For example, by a tender
requirement that the supplier has a development methodology that can be applied to
the project.
Guideline 2
The business case for the development of financial management systems should include the
approach to the development, proposed benefits and associated measures, budget, key
risks and actions to address risks.
Guideline 3
For large or complex projects, status reporting is expected through to a project steering
committee that meets at least every two months, and more frequently as required.
3.2.5 Change control
Direction
Changes made to financial management systems must be authorised and implemented in a
controlled manner to ensure the integrity of financial management data is maintained.
Procedure
Public sector agencies must have a change control and management process.
Guideline
The process should include:
 a formal process for requests for program changes;
 formal user signoff that the changes have been made in accordance with the user
requirements;
 signoff that appropriate testing has been performed, including consideration of unit,
systems, regression, user and other forms of testing; and
 migration to the production environment is appropriately controlled.
3.3
Education and training
Direction
Public sector agencies must ensure financial management staff are appropriately educated
and trained to fulfil their financial management responsibilities.
30
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Procedure
Training and education needs for the financial management team must be reviewed, at least
annually, by the CFAO or their delegate and a program must be developed to address these
needs.
see Guideline below
Guideline
i. The assessment of training and education needs should be documented and
communicated to the CFAO and should form the basis for allocation of a specific
education and training budget for the financial management team.
ii. Implementation of a program for addressing training and education needs should be
monitored on an annual basis and reported to the CFAO or their delegate.
iii. Where appropriate a public sector agency should incorporate the following elements
in its education and training model:
 a performance evaluation system linked to the requirements for financial
management;
 a training needs analysis, up front and periodically, as required;
 facilitation of on the job/self paced learning; and
 a formal training evaluation process.
3.4
Policies and procedures
3.4.1
Revenue
Direction
Public sector agencies must implement and maintain an effective internal control
framework over revenue transaction processing and management to ensure that revenue is
completely and accurately identified, recorded and collected.
Procedure
a) Policy and procedures for recognising and recording revenue and corresponding
receipts must be developed and implemented.
see Guideline 1 below
b) Responsibility for revenue and related transactions must be delegated to appropriate
officers in accordance with Direction 2.4.
see Guideline 2 below
c) The levels of charges for goods or services provided must be documented and
approved by the CFAO, and must be reviewed at least annually by a delegate of the
CFAO and a recommendation made to the Responsible Body as to how they should be
updated.
see Guideline 3 below
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
31
d) A register of outstanding receivables balances that ages the outstanding balances and
is used by management to monitor and follow up on overdue debtors must be
maintained. An analysis of aged debtors must be reported to the CFAO, or a delegate
of the CFAO, on a monthly basis.
see Guideline 4 below
e) A Public sector agency must regularly assess revenue that is to be foregone, waived or
written off. Revenue foregone, waived or written off must be approved by the CFAO
or other officer within the approved financial management delegations.
see Guideline 5 below
f) For Government Departments, appropriation revenue received for the provision of
outputs may only be recognised as revenue following certification by the Treasurer.
Guidelines
Guideline 1
The policies and procedures for recognising and recording revenue should cover:
 identification and recording of revenue accrued to the public sector agency, irrespective
of any subsequent cash inflow;
 how charges for goods or services are determined and approved, including consideration
of legal and taxation requirements such as for GST purposes;
 the timing and process for billing to ensure customers are billed as soon as practicable
after goods and services are provided;
 A standard template for billing customers that includes appropriate internal control
features;
 credit policies and negotiation of payment terms;
 recording of revenue and corresponding debtors in the financial records;
 processing of receipts;
 requirements for follow up of outstanding debtors;
 the audit trail that substantiates the receipt of individual revenue transactions;
 periodic and regular review of credit worthiness of customers and collectability of
receivables; and
 treatment of bad and doubtful debts.
Guideline 2
With respect to the delegation of responsibility for revenue, there should be segregation of
duties between roles and responsibilities for initiating debtors/revenue, cash
collection/banking of money, and processing credit notes, waivers and write-offs to the
greatest extent practicable.
Guideline 3
Public Sector Agencies should refer to BFMG 21 Setting Fees and Charges Imposed by
Departments and Budget Sector Agencies. This can be located on the Budget and Financial
Management website (http://bfm.dtf.vic.gov.au). Only agencies that are connected to the
Victorian Government common virtual private network can access this site. Please contact
your portfolio coordinator directly if you have problems with access.
32
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Guideline 4
Collection of revenue should be maximised through application of appropriate collection
and follow-up procedures. These procedures should identify:
 the priorities for outstanding debtor follow up (to ensure the cost of follow up does not
significantly overweigh the benefit of collecting the debt);
 steps to take for debts that are outstanding for specified periods of time eg: verbal follow
up and/or letters requesting payment and the point at which the debt should be referred
to legal action or to an outsourced debt collection specialist, if appropriate; and
 requirements for documentation of the actions taken.
Guideline 5
There should be an adequate audit trail to evidence the approval of revenue foregone,
waived or written off.
3.4.2
Cash handling
Direction
Public sector agencies must implement and maintain an effective internal control
framework over cash handling and banking so that cash from all sources is completely and
accurately identified, banked and recorded in the financial records.
Procedure
a) Policy and procedures for cash collection and handling must be developed and
implemented.
see Guideline 1 below
b) Responsibility for cash handling must be delegated to appropriate officers in
accordance with Direction 2.4.
see Guideline 2 below
c) All sources, locations and methods of cash collection must be identified and approved
by the CFAO and articulated in the policies and procedures.
Guidelines
Guideline 1
The policies and procedures for cash collection and handling should cover the following:
 complete, accurate, timely and secure receipting of incoming moneys such as postal
remittances, cash taken at approved cash collection points, money taken by credit card,
or other electronic media;
 use of sequentially numbered receipts;
 timeliness, process and frequency of banking – as a guide banking should be performed
daily unless the total collections has not exceeded $500, in which case banking should
always be performed at intervals of no more than 5 working days;
 complete, accurate and secure recording of incoming moneys in the accounting and
financial records;
 arrangements for secure storage of incoming moneys and moneys held that have not
been banked;
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
33
 the circumstances, if any, under which an incoming cheque can be cashed and/or change
given;
 process, audit trail and approval requirements for cancelling receipts;
 treatment of personal cheques that may be received and should be kept separate from
public monies;
 cash reconciliation requirements;
 nature, extent and procedures for control over petty cash and other cash floats;
 handover of cash from one officer to another;
 daily procedures for closing off any cash registers;
 audit trail requirements over cash transactions that ensures it is possible to follow up
dishonoured transactions;
 securing of documentation; and
 the review of adequacy of insurance.
Guideline 2
Delegation of the responsibility for cash handling must be performed in accordance with
Direction 2.4. Segregation of duties should be maintained at all times between cash
handling and other conflicting roles and responsibilities including cash, bank reconciliations,
banking, and invoicing and credit note processing.
3.4.3
Bank accounts
Direction
Public sector agencies must implement and maintain an effective internal control
framework over the establishment and management of bank accounts to ensure balances
are accurately reflected in the financial records and bank accounts are operated efficiently
and effectively.
Procedure
a) Bank accounts must only be opened with the express written approval of the
Responsible Body or its delegate.
b) A Public sector agency must have as few banking institutions and bank accounts as
practicable. The number of bank accounts and institutions used for banking should be
reviewed at least annually by the CFAO.
c) All bank accounts must be reconciled, at least on a monthly basis.
d) Bank accounts are only to be closed with the approval of the Responsible Body or its
delegate.
e) All collections must be paid into the appropriate bank accounts completely, accurately
and in a timely manner.
see Guideline below
f) A register of bank accounts and facilities should be maintained.
34
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Requirements for government departments
All new bank accounts opened and all bank account closures by government departments
must be reported to the Department of Treasury and Finance.
Guideline
Section 15 of the FMA provides for the opening and maintaining by a government
department of bank accounts with a bank or banks.
3.4.4
Cash flow forecasting
Direction
Public sector agencies must implement and maintain an effective internal control
framework over cash flow forecasting and cash flow management to ensure cash deficits
and surpluses can be effectively managed.
Procedure
a) Cash forecasting must be performed to ensure sufficient cash is available to operate
the business of the public sector agency, to maximise investment opportunities and
minimise borrowing costs.
see Guideline below
b) Cash forecasts must be regularly compared (at least monthly) against actual cash
flows, updated as required and reported to the CFAO.
c) Government departments and other public sector agencies who are required to bank
into the Public Account must:
 prepare and provide the Department of Treasury and Finance with long-term cash
flow forecasts on a 12 month rolling basis;
 prepare and provide, on a monthly basis to the Department of Treasury and
Finance, detailed daily estimates of cash flows for the next two forecast months;
and
 prepare and provide the Department of Treasury and Finance with daily advice on
Public Account receipts and payments.
Guideline
Three levels of rolling forecasts of cash flows are recommended for public sector agencies:
 long-term strategic forecasts, based on annual budget estimates, and used to plan for
significant cash flows and any contingencies;
 short-term tactical forecasts, usually prepared monthly to provide detailed estimates of
the cash flows expected; and
 weekly operational forecasts, where appropriate, which allow public sector agencies’
immediate cash flow requirements to be met.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
35
3.4.5
Procurement
Background
Section 54L of the FMA empowers the Victorian Government Purchasing Board (VGPB) to
make supply policies. These policies are to be consistent with these Directions. All
Accountable Officers of government departments and other staff of government
departments must comply with supply policies. This means that the following organisations
must comply with the supply policies:
 all government departments;
 Office of the Chief Commissioner of Police;
 Auditor-General’s Office;
 Office of Public Prosecutions;
 Victorian Electoral Commission;
 Office of the Ombudsman;
 Office of the Commissioner for Public Employment;
 Essential Services Commission;
 Office of the Legal Ombudsman; and
 Office of the Victorian Privacy Commissioner.
Direction
Public sector agencies must implement and maintain an effective internal control
framework over procurement activities to ensure procurement of goods or services is
authorised in accordance with business needs and within a documented framework of
procurement policies and procedures.
Procedure
a) Relevant mandatory elements in relation to procurement are included at Directions
2.1 Financial Code of Practice, 3.1.5 Managing Outsourced Financial Service and
3.4.6 Expenditure
b) A public sector agency must ensure that its framework of procurement policies and
procedures are based on the following principles:
 value for money;
 open and fair competition;
 accountability;
 risk management; and
 probity and transparency.
c) In addition, a public sector agency must comply with the Victorian Industry
Participation Policy issued by the Victorian Government.
Guideline
For more information refer to the Victorian Government Purchasing Board website at
www.vgpb.vic.gov.au or to access the Guide for the Acceptance of Performance Bonds by
public sector agencies refer to the Department of Treasury and Finance website at
www.dtf.vic.gov.au.
36
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
3.4.6
Expenditure
Direction
Public sector agencies must implement and maintain an effective internal control
framework over expenditure transaction processing and management to ensure that
disbursements (including but not limited to grants, capital expenditure, salaries and wages,
and other recurrent expenditure) are appropriately authorised and incurred in accordance
with business needs, and captured in the financial records.
Procedure
a) Policy and procedures for the timely and accurate recording of committed
expenditure must be developed and implemented.
see Guideline 1 below
b) Officers with appropriate financial delegations are responsible for approving
expenditure and related transactions.
see Guideline 2 below
c) A system to pay all debts as and when they are due and payable and to ensure early
payment discounts are fully utilised where appropriate must be implemented.
d) Payments must be made in a secure and efficient manner that takes advantage of
technologies.
e) Policies and procedures must specifically address and be established in the following
expenditure types:
 capital expenditure;
 travel;
 hospitality;
 personal expense reimbursement;
 gifts;
 employee advances;
 petty cash;
 Purchasing Card Rules for Use and Administration issued by the Department of
Treasury and Finance.
f) Refer to Direction 4.5.3
g) All public sector agencies must report to the Minister for Finance, within one month
of becoming aware of, any material and substantial breach of policies and procedures
relating to the expenditure transaction processing and management and the
management action taken by the public sector agency in response to this breach.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
37
Guidelines
Guideline 1
The policy and procedures for timely and accurate recording of expenditure should cover
requirements in Direction 3.4.6 in addition to:
 identification and recording of expenditures incurred irrespective of any subsequent cash
flow;
 expenditure only to be incurred when duly approved, within available budgets and for
authorised purposes;
 systems to ensure all disbursements and payments are approved by an appropriately
authorised officer;
 procedures to ensure that disbursements and payments are not duplicated;
 payments only being made on original tax invoices or in accordance with ATO tax rulings
in this area, with instances of non compliance monitored by the CFAO;
 an audit trail which substantiates payments and demonstrates that internal control
systems and procedures have been adhered to;
 a mechanism for periodic review of all major suppliers for performance and
competitiveness should be established; and
 mechanisms to ensure all legal and taxation requirements, such as for GST and FBT are
satisfied.
Guideline 2
With respect to the approval of expenditure, where practical, appropriate segregation of
duties within the procurement and payment processes would typically incorporate
segregation of the following:
 initiating expenditure;
 approving expenditure;
 receipt of goods and services;
 invoice verification and processing;
 disbursement and payments processing; and
 maintenance of vendor records.
3.4.7
Employee costs
Direction
Public sector agencies must implement and maintain an effective internal control
framework over financial transaction processing for employee expenses and for employee
expense management to ensure that salaries, wages and other employee costs (including
full-time, part-time and casual employees) are authorised and paid accurately, efficiently,
and in a timely and secure manner.
38
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Procedure
a) A system of internal control must be established and documented in relation to the
capture, approval, processing and payment of employee expenses such as salary and
wages and associated leave expenses.
see Guideline 1 below
b) There must be independent review and approval of salary and wage data (including all
masterfile changes) prior to processing salary and wage payments.
c) There must be security over payroll data including personnel files, payroll reports and
other sensitive employee information.
d) Payments must be made in a secure, timely, and accurate manner.
see Guideline 2 below
e) Leave entitlement balances and corresponding liabilities must be recorded and
monitored with a view to ensuring they are minimised at all times to avoid any
significant impact upon cash flow.
Guidelines
Guideline 1
With respect to the establishment of a system of internal control, there should be
segregation of duties between roles and responsibilities for the:
 capture and authorisation of salary and wage information;
 processing, including data entry and maintenance, of salary and wage information;
 approval of salary and wage payments and adjustments;
 processing of the salary and wage payments; and
 maintenance of an audit trail which substantiates salary and wage payments and
demonstrates that internal control systems and procedures have been adhered to.
Guideline 2
To ensure that payments are made in a secure, timely and accurate manner, where possible
a public sector agency should take advantage of appropriate technology in relation to
electronic payments of employee expenses at all times.
3.4.8
Commission on employee payroll deductions
Direction
Public Sector Agencies must recover the costs associated with voluntary payroll deductions
from gross pay by charging the payee a commission on amounts deducted.
Procedure
a) Commission must not be charged on taxation, superannuation or other mandatory
deductions.
b) Any commission which is collected must be brought to account as revenue.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
39
c) In the case of health insurance deductions, each public sector agency must enter into
arrangements with all health insurance funds to collect the commission annually with:
 the rate of commission payable on contributions determined by DTF; and
 the rate of commission payable indexed annually in accordance with the ‘annual
rate’ set by the Treasurer under section 5(4) of the Monetary Units Act 2004.
see Guideline below
d) In the case of any other deductions, the Accountable Officer must determine the rate
of commission.
Guideline
The rate of commission on health insurance contributions, relevant to the current financial
year is published on the DTF website (www.dtf.vic.gov.au). The rate from 1 July 2015 is
$11.80 per contributor, per annum.
3.4.9
Physical and intangible assets
Background
Section 44B (1) of the FMA requires public sector agencies to maintain a register of assets
held or managed by it. Section 44B (2) provides that the register is to be in the form, and
contain the information determined by the Minister for Finance after consultation with the
Victorian Managed Insurance Authority (VMIA).
Direction
Public sector agencies must implement and maintain an effective internal control
framework for asset management to ensure that assets are identified, recorded accurately
and accounted for in accordance with Australian Accounting Standards.
Procedure
a) Policy and procedures for asset identification, recording and management must be
established and maintained.
see Guideline 1 below
b) Depreciation and amortisation must be calculated in accordance with relevant
accounting standards and taxation requirements.
see Guideline 2 below
c) Assets must be kept in secure custody and used for authorised purposes only.
d) Proper authority in the form of financial delegations or specific authorisation must be
obtained before acquiring, transferring or disposing of an asset.
e) Proper policies and procedures must be documented for the revaluation of assets
including appropriate approvals for changes to asset values in accordance with
financial delegations.
40
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
f) Records and details must be maintained in relation to contingent assets as required
for Public sector agency needs, and to satisfy accounting standards and disclosure
requirements.
g) Records and details for intangible assets must be sufficient to ensure compliance with
accounting standards and disclosure requirements, in addition to any operational
needs of the business.
Guidelines
Guideline 1
The policies and procedures for asset identification, recording and management should
incorporate the following:
 recognition of assets upon receipt or commissioning;
 verification of the physical existence, location and condition of assets and inventories on
a regular basis and requirements for the asset register to be reconciled against the
records of the public sector agency. This should be conducted by someone other than to
whom the asset has been assigned;
 complete and accurate records of inspections made with respect to maintenance needs
and actions taken should be maintained; and
 the creation or purchase of an asset requires standard expenditure procedures to be
followed. Financial delegations of authority should specify those officers able to
authorise the transfer or disposal of an asset.
Guideline 2
 The public sector agency should have its depreciation policies and rates clearly
articulated in the relevant internal documentation, such as an accounting policy
document.
 The allocation of depreciation expense to outputs should be recorded.
3.4.10 Liabilities
Direction
Public sector agencies must implement and maintain an effective internal control
framework for the incurrence and management of liabilities to ensure they are incurred and
managed in line with proper procedures and the public sector agency’s objectives.
Procedure
a) Policy and procedures must be developed to ensure that liabilities are incurred for
authorised purposes only and that proper authority is obtained prior to incurring
liabilities.
see Guideline below
b) Officers with appropriate authorisation or financial delegations are responsible for
incurring liabilities
c) Records and details must be maintained in relation to contingent liabilities and
contingent assets as required for Public sector agency needs and to satisfy accounting
standards and disclosure requirements.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
41
Guideline
The policies and procedures for the management of liabilities should cover:
 requirements for complete and accurate recording of liabilities as and when they are
incurred;
 liabilities to be accounted for in accordance with the public sector agency’s approved
accounting policies and applicable accounting standards and other requirements; and
 mechanisms to ensure liabilities are settled when they become due and payable.
3.4.11 Reconciliations
Direction
Public sector agencies must implement and maintain procedures to ensure that
reconciliations are completed and reviewed in a timely manner to ensure the accuracy of
the financial records.
Procedure
Procedures in relation to the completion, review and monitoring of reconciliations must be
implemented.
Guideline
i. These should include, where appropriate:
 responsibility for reconciliation completion;
 responsibility for reconciliation review;
 frequency of reconciliations completion;
 prioritisation of key reconciliations;
 completion deadlines;
 requirements for reconciling items to be followed up and cleared;
 format of reconciliations; and
 appropriate supporting documentation to be attached.
ii. There should be separation of duties between responsibilities for the preparation and
review of reconciliations.
3.4.12 Administration of discretionary financial benefits
Background
A discretionary financial benefit is a financial benefit given to a person or body for a
specified purpose directed at achieving outcomes sought by government policy. Examples of
discretionary financial benefits include grants, sponsorships and donations.
A discretionary financial benefit does not include a financial benefit received by a person or
body as consideration for goods or services provided by them under an agreement entered
into on commercial terms or a transfer of funds to a government entity for the purpose of
funding non contestable output delivery.
Direction
When administering discretionary financial benefits, public sector agencies must implement
and maintain effective financial management controls to ensure that a transparent process
42
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
delivers measurable efficient and effective financial management and accountability
outcomes sought by Government policy.
Procedure
Policy and procedures for the financial management of discretionary financial benefit
programs must be developed and implemented, where applicable. Any policies and
procedures must be consistent with the FMA and the Directions.
Guidelines
Guideline 1
Policies and procedures for the financial management of discretionary financial benefits
should be developed within the public sector agency’s broader financial management
frameworks. They should include:
 procedures for determining the financial viability of financial benefit recipients to deliver
the desired outcome;
 delegations for the approval of financial benefit recipients and for payments to such
recipients;
 procedures for the authorisation of payments made to financial benefit recipients;
 separation of duties between the appraiser of applications, approval of offers and
making financial benefit payments;
 requirement to establish financial reporting requirements of financial benefit recipients
in the terms and conditions of a funding agreement;
 mechanisms and responsibilities for monitoring the use of, and acquitting, financial
benefits;
 procedures for the recovery of financial benefits in a timely and effective manner when
and if necessary in circumstances where there is an ineffective delivery of the desired
outcome; and
 identification of the financial management information technology or other system
requirements to ensure effective financial management and accountability for financial
benefits.
Guideline 2
There are a number of other elements that need to be considered in relation to the overall
management and administration of discretionary financial benefits, these include the
following:
 Establishing the need for a financial benefit program:
– Each financial benefit program will require a clearly defined objective and a business
case which analyses the need for the program, alternate effective means of achieving
the program objective and explores alternative sources of funding in terms of a loan
or Commonwealth or private funding etc.
 Establishing performance measures:
– To determine the outcome and effectiveness of a financial benefit program, it is
essential to design relevant and meaningful performance measures and indicators at
the commencement of the program.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
43
 Financial risk management:
– Financial benefit program management resource limitations and other financial risks
associated with such programs should be identified and mitigated through a
documented financial risk management strategy at the planning stage.
– At the operational stage of a program, a sound performance information system that
focuses on continuously identifying and treating emerging financial risks should be
available as a management tool.
 Ensuring value for money:
– The design of a value for money financial benefit program needs to include the best
mix of funding sources, the identification of efficient administrative support costs,
(where appropriate) the use of on-line financial benefit application, appraisal and
management systems (to streamline the application and selection process, reduce
administrative costs and increase the transparency of discretionary financial benefit
administration) and strategies to manage relationships and cooperatively streamline
and reduce duplication of effort.
 Establishing selection criteria for discretionary financial benefits:
– To achieve transparency and effective selection of financial benefit recipients the
design of a financial benefit program needs to include evidence based selection
criteria.
 Management of effective financial benefit funding agreements:
– The design of funding agreements needs to include clearly defined terms and
conditions to facilitate effective outcomes and minimise ongoing monitoring effort.
The management of agreements needs to include procedures for monitoring
payments, recipient organisations and progress of outcomes as well as arrangements
for financial accountability through effective financial benefit acquittal.
 Evaluation of financial benefit programs:
– Procedures need to test the adequacy of performance information and evidence of
the quality, efficiency and effectiveness of a program, as well as, whether the
program achieved the outcome it was designed to achieve.
 Reporting:
– In the absence of tailored public performance reports, the accountability to report to
the Parliament and the public is best achieved through disclosure in budget papers
and/or Departmental annual reports.
3.4.13 Information collection and management
Background
The objectives of this Direction are to ensure that the collection and storage of information
is appropriately managed; and to provide assurance that reliable and accurate information is
available for the purposes of risk management and financial and operational reporting.
The integrity of information maintained by an organisation can be enhanced by the
following factors:
 robust data collection processes, collation procedures and methods;
 consistent interpretation, classification and storage of information; and
 adequate risk identification, assessment and mitigation strategies to ensure data quality.
44
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Accordingly, public sector agencies must take reasonable steps to ensure the accuracy and
completeness of information collected and stored, which supports reporting by establishing
appropriate policies, standards and controls to direct governance and risk management
activities.
Direction
Public sector agencies must take reasonable steps to ensure that data is accurate and
adequate when it is collected, and that its accuracy is maintained during subsequent use and
reporting. The standard for accuracy and adequacy is to be determined by reference to what
is expected for the purposes of effective risk management and financial and operational
reporting.
Procedure
a) Appropriate policies and procedures for information collection, storage and
dissemination must be developed, implemented and maintained, reflecting regular
risk assessments related to key agency sets of data.
b) Responsibility for the integrity of significant sets of data must be delegated to
appropriate officers by the Accountable Officer.
c) Public sector agencies must on a regular basis conduct a review of their obligations
under this Direction.
Guideline
This Direction requires that public sector agencies take necessary steps to ensure a prudent
approach to information management, and that a sufficient level of attention be given to
associated risks.
Public sector agencies should investigate any errors or deficiencies upon discovery. The
outcomes of the investigation, along with any corrections made, should be clearly
documented to reduce the possibility of similar occurrences.
Public sector agencies should consider the disclosure of any factors that may compromise
data accuracy at the time of publishing the information. The disclosure could provide
information regarding:
 the source of the information;
 the manner in which it has been stored and processed; and
 any known vulnerabilities inherent in the information, impacting on its reliability.
In complying with this Direction, relevant public sector agencies should refer to the
requirements of the Victorian Government Risk Management Framework as espoused in
Direction 4.5.5 Risk Management Compliance.
The use of information technology (IT) for data collection, processing and storage presents a
range of security and control considerations that are specific to an IT environment. In
complying with this Direction, relevant Public Sector Agencies should also refer to the Whole
of Victorian Government ICT Policy on Information Security Management issued by the
Government Services Group of the Department of Treasury and Finance, and Direction 3.2
Information Technology Systems.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
45
Additional guidance on the creation, maintenance, destruction, transfer and storage of
information can be found on the Public Record Office Victoria website:
www.prov.vic.gov.au. This guidance is consistent with public sector record management
obligations under the Public Records Act 1973.
Furthermore, Public Sector Agencies should also consider their statutory obligations under
the Information Privacy Act 2000 and any other relevant legislation, in assessing information
management risk. Guidance on the application of the Information Privacy Act can be found
on the Victorian Privacy Commissioner’s website: www.privacy.vic.gov.au.
46
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
4.
Financial management reporting
Financial management reporting is designed to provide analysis and information that
supports a public sector agency’s decision making, the management of its finances and the
measurement and management of its performance. It should be part of a suite of
management reports that help focus the public sector agency on meeting its strategic and
operational goals and objectives. It should also be part of the mechanism by which
compliance with external reporting requirements is achieved in accordance with the
requirements of the FMA.
The Directions for financial management reporting set standards for public sector agencies
to ensure financial management reporting that will assist the public sector agency in
measuring and managing performance and ensuring consistency with applicable statutory
reporting obligations.
4.1
Internal financial management reporting
Direction
Public sector agencies must implement and maintain timely, accurate, appropriate and
effective reporting on financial matters for use in management decision making and to
support broader operational management reports.
Procedure
a) The requirements of the public sector agency for financial management information
must be identified and used as a basis for the design, preparation and distribution of
internal financial management reports.
see Guideline 1 below
b) Financial management reports must be tabled and discussed by the Responsible Body
or at another recognised senior forum as determined by the Responsible Body, on a
timely basis to ensure financial information is adequately monitored and acted on.
see Guideline 2 below
c) Prior to release, internal financial management reports must be reviewed by the
CFAO, or delegate for internal financial management reports that are not material.
d) The financial systems used by the public sector agency must support internal financial
management reporting to the level of detail and within the timeframes required.
see Guideline 3 below
Guidelines
Guideline 1
i. Internal financial management reports of a public sector agency should be prepared
monthly, on an accruals accounting basis or modified accruals method, and cover:
 income statement (profit and loss, income and expenditure);
 balance sheet;
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
47
 statement of recognised income and expense;
 cash flow; and
 public sector agency financial key performance indicators (KPIs) (including, in the
case of government departments, performance measures for objectives and
outputs as published in the budget papers).
ii. Reports should include variance analysis of budget to actual including discussion on
reasons for variations where appropriate and any action taken to address the
variations. Reporting should include monthly, year to date (YTD), prior year
comparatives and current forecast data where appropriate.
iii. The reporting format should remain consistent from period to period. Changes made
should reflect changes in the business, improvements in the presentation or changes
based on feedback obtained from end users.
iv. Reporting should be aligned with the objectives and needs of the public sector agency
in terms of the nature and extent of reporting, level of detail and frequency.
v. Feedback on internal reporting should be sought and obtained from end users on a
regular basis to ensure reporting remains relevant.
Guideline 2
i. Appropriate financial management reports (and/or summary reports) should be
presented and discussed at various levels within the public sector agency including
the executive team and business management. There should be evidence that this has
occurred.
ii. To ensure reporting is timely and appropriate, the public sector agency should
develop a monthly reporting timetable that allows sufficient time for report
preparation, review and distribution for all financial management reports.
iii. Quarterly reports to the Expenditure Review Committee of Cabinet (ERC) should be in
accordance with the deadlines set by the Department of Treasury and Finance.
Guideline 3
An adequate audit trail should be maintained in the production of financial management
reports for the changes made when compared to the underlying financial systems. Where
necessary, the public sector agency’s chart of accounts, or equivalent, should be appropriate
to cater for this, whilst also satisfying external reporting requirements.
4.2
Reporting requirements in terms of Part 7 of the FMA
Background
The annual report is the principal medium through which Public Sector Agencies discharge
their accountability to the Parliament, government and the people of Victoria. The annual
report should assist these users in making decisions about the utilisation of resources in the
relevant entities. Annual reports therefore should provide both general and financial
information about the operations and performance of public sector agencies, together with
assessments of results and financial position. The FMA requires that the annual report of a
relevant public sector agency comprise (a) a report of operations and (b) financial
statements.
48
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Direction
The public sector agency must develop procedures to ensure timely and accurate
preparation of all reports required under Part 7 of the FMA.
Procedure
Financial statements required under Part 7 of the FMA
a) The financial statements must be prepared in accordance with:
 Australian accounting standards (AAS and AASB standards) and other mandatory
professional reporting requirements (including urgent issues group consensus
views);
 Financial Reporting Directions; and
 business rules.
b) The financial statements are to comprise the following:
 income statement;
 balance sheet;
 statement of recognised income and expense; and
 cash flows statement; and
 notes to the financial statements.
c) The financial statements must where applicable be signed and dated by the
Accountable Officer, CFAO and a member of the Responsible Body, stating whether, in
their opinion:
 the financial statements present fairly the financial transactions during the
reporting period and the financial position at the end of the period;
 the financial statements are prepared in accordance with this direction and
applicable Financial Reporting Directions; and
 the financial statements comply with applicable Australian accounting standards
(AAS and AASB standards) and other mandatory professional reporting
requirements (including urgent issues group consensus views).
d) The financial statements must be expressed to the nearest dollar except where the
total assets, or revenue, or expenses of the public sector agency are greater than:
 $10 000 000, when the amounts shown in the financial statements may be
expressed by reference to the nearest $1 000; or
 $1 000 000 000, when the amounts shown in the financial statements may be
expressed by reference to the nearest $100 000.
e) The financial statements must be reviewed and recommended by the Audit
Committee or Responsible Body prior to finalisation and submission.
f) The financial statements of government departments must present fairly and in
accordance with the requirements contained within the Model Financial Report for
Victorian Government Departments.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
49
Report of operations required under Part 7 of the FMA
g) The report of operations should include qualitative and quantitative information on
the operations of the public sector agency and should be prepared on a basis
consistent with the financial statements prepared by the public sector agency
pursuant to the FMA. This report should provide users with general information about
the entity and its activities, operational highlights for the reporting period, future
initiatives and other relevant information not included in the financial statements.
h) The report of operations must be prepared in accordance with the requirements of
the Financial Reporting Directions.
i) The report of operations for government departments must be presented in
accordance with the guidelines contained within the Model Financial Report for
Victorian Government Departments.
j) The report of operations must be signed and dated by the Accountable Officer in the
case of a government department or, in the case of any other public sector agency, a
member of the Responsible Body.
k) *
*
*
*
*
(Requirement now contained in FRD 8C).
Comparison with actual results
l) Government departments must include in their annual report, but not forming part of
the audited financial report, a comparison between their portfolio financial
statements published in Budget Paper No. 4 and actual results for the portfolio for the
corresponding financial year.
m) The comparison between portfolio budget and actual figures referred to in (l) above
must be presented as a set of financial statements in the same format and
consolidation basis as those for the portfolio set out in Budget Paper No. 4 for the
financial year. These financial statements are to be referred to as ‘budget portfolio
outcomes’.
Lodgement of annual reports
n) In relation to a financial year each public sector agency must provide a copy of its
financial statements and report of operations either directly or via the portfolio
Department, in the form of its annual report, to:
Deputy Secretary
Budget and Financial Management Division
Department of Treasury and Finance
1 Treasury Place
East Melbourne Victoria 3002
Consolidated financial report for the state
o) Financial information for the purposes of meeting the state’s consolidated financial
reporting requirements in section 24 and 25 of the FMA must be forwarded to the
Department of Treasury and Finance in the format and by the date determined by the
Deputy Secretary, Budget and Financial Management Division.
Guideline
The Model Financial Report can be located on the Department of Treasury and Finance
website (http://dtf.vic.gov.au).
50
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
4.3
Other external reporting
Direction
A public sector agency must develop procedures to ensure that it meets all other external
reporting requirements in a timely and accurate manner. The requirements include those
contained in the Strategic Management Framework (SMF), as appropriate, and as issued
from time to time by the Department of Treasury and Finance.
Procedure
a) Public sector agencies must identify all of their external reporting requirements.
b) External financial reports must be delivered completely, accurately and in a timely
manner.
c) Prior to release, external financial reports must be reviewed by the CFAO or their
delegate.
d) and da) Refer to Direction 4.5.4
Guideline
The Strategic Management Framework can be located on the Department of Treasury and
Finance website (http://dtf.vic.gov.au). Only agencies that are connected to the Victorian
government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.
4.4
Financial performance management and evaluation
Direction
Public sector agencies must develop appropriate financial management performance
indicators and monitor performance against these to identify key statistics and trends for
use in management decision-making.
Procedure
a) Financial key performance indicators (KPIs) must be developed by the Responsible
Body working with management, including the CFAO and the Accountable Officer.
b) The financial KPIs must be designed to measure and monitor financial management
performance of the public sector agency.
c) Performance against financial KPIs must be measured, monitored and reported on a
regular basis (at least quarterly, unless the financial KPI is an annual measure) to the
Responsible Body.
d) The Responsible Body must ensure that procedures are implemented to monitor
financial KPIs.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
51
Requirements for government departments
e) Government departments must:
 set performance indicators for its departmental objectives in accordance with the
business rules contained in Budget and Financial Management Guidance BFMG-08
Objectives Specification, Performance Indicators published by the Department of
Treasury and Finance.
 set output performance targets in accordance with the business rules contained in
Budget and Financial Management Guidance BFMG-09 Output Specification,
Performance Measures published by the Department of Treasury and Finance.
Guideline
i. Regular measurement and reporting on performance indicators will promote a culture
of continuous performance improvement.
ii. Financial KPIs for individual financial management team members should be
developed and included as part of their annual (or other) performance management
process. These financial KPIs should be directly aligned with the financial KPIs of the
financial management team as a whole.
iii. Performance of financial management team members should be measured and
monitored as part of the public sector agency’s performance management.
iv. Financial KPIs should be aligned with key objectives of the finance function and Public
sector agency as a whole and should be simple to use and understand.
v. In terms of measuring a government department’s performance, financial KPIs should
provide the tools for assessing the government department’s performance for the
delivery of outputs (products and services) including the:
 attainment of departmental objectives; and
 delivery of departmental outputs.
vi. BFMG-08 and BFMG-09 can be located in the Budget and Financial Management
website (http://bfm.dtf.vic.gov.au). Only agencies that are connected to the Victorian
government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.
4.5
Financial management compliance obligations
4.5.1
Compliance with Directions
Direction
Public sector agencies must certify that they have complied with all applicable Directions.
Procedure
Public sector agencies must—
a) certify annually, using the form provided by DTF for the purpose, that they have
complied with all applicable Directions;
b) conduct an annual review of their obligations under these Directions; and
c) identify and rectify any failure or deficiency in complying with these Directions.
52
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
Guideline
Compliance with the Directions is generally monitored through the Financial Management
Compliance Framework.
Certification of compliance should be made annually to the Responsibly Body and/or audit
committee (or equivalent). Those public sector agencies subject to the Financial
Management Compliance Framework are also expected to certify their compliance with
these Directions annually to their Relevant Minister as per the requirements of the Financial
Management Compliance Framework.
For more information on the Financial Management Compliance Framework, refer to the
Department of Treasury and Finance website at http://dtf.vic.gov.au.
4.5.2
Taxation
Direction
Public sector agencies must demonstrate that they are complying with the legal
requirements of the Commonwealth of Australia relating to taxation obligations and
concessions.
Procedures
Public sector agencies must in respect of the requirements and regimes established under
the laws of the Commonwealth of Australia—
a) certify annually that they have met requirements in relation to taxation compliance
and concessions;
b) conduct an annual review of compliance with requirements in relation to taxation and
concessions;
c) develop and maintain taxation policies and procedures for use by agency staff;
d) develop and implement a taxation education program for agency staff; and
e) identify and rectify any taxation compliance issues.
Guideline
Compliance with the Taxation Direction and Procedure is monitored through the Taxation
Compliance Rules and associated guidance.
Certification of compliance should be made annually to the Responsibly Body and/or audit
committee (or equivalent). Those public sector agencies subject to the Financial
Management Compliance Framework are also expected to certify their taxation compliance
status annually to their Relevant Minister as per the requirements of the Financial
Management Compliance Framework.
For more information on the Taxation Compliance Rules, refer to the Department of
Treasury and Finance website at http://dtf.vic.gov.au.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
53
4.5.3
Purchasing card
Direction
Public sector agencies that operate a purchasing card must comply with the following
Purchasing Card procedure.
Procedure
a) Public sector agencies which operate a purchasing card (‘card’) must:
 establish their own facility account, including a maximum monthly account limit,
directly with the card provider;
 ensure only one card is issued to each employee approved as a cardholder;
 ensure cardholders use the Card for official business and that purchases of goods
and services are for government purposes;
 require cardholders to provide supporting documentation for all transactions and
ensure that monthly statements are reviewed and approved by the appropriate
financial delegate, and that any discrepancies identified with the cardholder or
provider are resolved in a timely manner;
 ensure cardholders hold a financial delegation and their individual transaction
limits do not exceed this delegation;
 ensure that all individual card limits do not exceed $25 000, unless approved by
the Minister for Finance;
 ensure adequate monitoring and security procedures are in place;
 include in the internal audit program a review of the Card scheme and the use of
cards issued; and
 certify annually that they have followed this Purchasing Card procedure.
See Guidelines 1 and 2 below
b) The accountable officer must provide a written report to the Minister for Finance and
the public sector agency’s audit committee in the event of a significant instance of
unauthorised use of a purchasing card, as soon as an inquiry into the unauthorised
use has been completed.
See Guideline 3 below
c) Each public sector agency to report annually to the Minister for Finance all instances
of unauthorised use of its purchasing cards for the period ending 30 June.
See Guideline 3 below
Guidelines
Guideline 1
Public sector agencies are required to report annually on their compliance with Procedure
(a), as part of their annual compliance with the Directions generally. This is monitored
through the Financial Management Compliance Framework.
All instances of unauthorised use (as defined by the Purchasing Card Rules for Use and
Administration (the Rules)) must be reported annually to the Minister for Finance, in
accordance with Procedure (c).
54
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
In addition to the requirements above, in the event of a significant instance of unauthorised
use of a purchasing card, in accordance with Procedure (b), the accountable officer must
provide a written report to the Minister for Finance and the public sector agency’s audit
committee as soon as an inquiry into the unauthorised use has been completed. A copy of
this report should also be provided to the relevant Minister.
Guideline 2
When implementing the necessary internal controls for the card, public sector agencies and
cardholders are encouraged to apply the principles set out in the Rules, issued by the
Department of Treasury and Finance.
The Rules outline guiding principles and procedures that should be followed in relation to
the use and administration of the Card. More detailed guidelines or policies, relating to the
use and administration of the Card may also be issued by Public Sector Agencies subject to
them being consistent with the Rules.
For more information on the Rules, refer to the Department of Treasury and Finance
website at http://dtf.vic.gov.au. Only agencies that are connected to the Victorian
government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.
Guideline 3
A significant instance of unauthorised use should be determined by reference to Section 7
‘Unauthorised use’ of the Rules.
4.5.4
Thefts and losses
Direction
Public sector agencies must comply with the following thefts and losses procedure.
Procedure
a) The Responsible Body must ensure that all cases of suspected or actual theft, arson,
irregularity or fraud in connection with the receipt or disposal of money, stores or
other property of any kind whatsoever under the control of a public sector agency are
notified to the Minister for Finance and the Auditor-General as follows:
 in respect to the receipt or disposal of money:
– if the amount is equal to or exceeds $1 000, at the time of the occurrence with
an incident report to be provided within two months; or
– if the amount is less than $1 000 annually for the period ending 30 June
together with an incident report.
 in respect to stores and property of any kind:
– if the value is equal to or exceeds $20 000, at the time of occurrence with an
incident report to be provided within two months; or
– if the value is less than $20 000, annually for the period ending 30 June
together with an incident report.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
55
b) an incident report prepared for the purposes of paragraph (b) must state, in addition
to any other information that it appears appropriate to include:
 whether internal controls and systems have been reviewed;
 whether any weaknesses in internal controls and systems have been identified and
have or will be rectified;
 the status of any proceedings, investigations or disciplinary actions; and
 what has been recovered, whether by way of money, stores, other property or
insurance.
Guideline
The Thefts and Losses Rules set out the principles to be applied and followed in relation to
the monitoring and reporting of instances of thefts and losses.
Public sector agencies are required to report annually on their compliance with Procedures
(a) and (b), as part of their annual compliance with the Directions generally. This is
monitored through the Financial Management Compliance Framework.
All instances of thefts and losses must be reported to the Minister for Finance and the
Auditor-General, in accordance with Procedure (a) either at the time of occurrence or
annually.
In addition to the requirements above, the Accountable Officer must provide a written
report to the Minister for Finance and the Auditor-General as soon as an inquiry into the
theft or loss has been completed.
A copy of any notification provided to the Minister for Finance and the Auditor-General
should be provided to the relevant Minister.
4.5.5
Risk management framework and processes
Direction
The Responsible Body must ensure the public sector agency complies with the mandatory
requirements set out in the Victorian Government Risk Management Framework.
Procedure
a) The Responsible Body must include a statement of attestation in the public sector
agency’s annual report that the agency has complied with the mandatory
requirements of the Victorian Government Risk Management Framework.
b) For public sector agencies with an Audit Committee, this statement must be verified
by the Audit Committee.
Guideline
Further guidance and a template statement of attestation is provided in the Victorian
Government Risk Management Framework.
56
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
4.5.6
Treasury risk management
Background
The objectives of this Direction are to ensure that treasury risks are effectively identified,
assessed, monitored and managed by public sector agencies, and that the strategies
adopted by public sector agencies are consistent with the overall objectives of the
Government.
The State has a conservative philosophy for the management of treasury risks and
accordingly, public sector agencies are encouraged to develop specific measures that best
address the borrowing and investment risks of their business.
Direction
Public sector agencies are required to undertake all borrowings, investments and financial
arrangements with a financial institution that is either a State owned entity or has a credit
rating, assigned by a reputable rating agency, that is the same as or better than the State of
Victoria4 subject to the following exceptions:
 where a public sector agency has been granted specific borrowing or investment powers
under its constituting legislation, this Direction will not apply (see explanatory note);
 where the investment is cash on hand in a transactional bank account with an ADI;
 where the financial arrangement is a foreign currency hedging transaction of less than
$1 000 000 undertaken with an ADI;
 where a public sector agency is operating a bank overdraft as part of its normal
transactional banking operations;
 where amounts invested by the public sector agency with an ADI, excluding cash on hand
in a transactional bank account, do not in aggregate exceed $2 000 000;
 where the public sector agency holds money, other than money held on trust for the
State or a public body, invested pursuant to a statutory function to hold it on trust for a
known beneficiary; or
 where, following consultation with the public sector agency’s portfolio Minister, the
Treasurer has in writing approved otherwise.
Explanatory note:
Where a public sector agency merely has general powers to do things necessary or
convenient to perform its functions or achieve its objects, this Direction will apply to that
Agency’s borrowings or investments. Where specific borrowing and/ or investing powers are
provided e.g. investment powers for registered funded agencies under the Health Services
Act 1988, this Direction will not apply to those investments.
Procedure
Relevant public sector agencies must—
a) conduct an annual review of their obligations under this Direction; and
b) identify and rectify any failure or deficiency in complying with this Direction.
4
The State of Victoria was rated AAA by Standard and Poor’s and Moody’s at the time of
issuing this Direction.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
57
Guideline
This Direction requires that public sector agencies take the necessary steps to ensure a
prudent approach to treasury management and requires that a sufficient level of attention
be given to the risks associated with its operation.
For example, as part of the Government’s prudent approach to treasury risk management,
the Government has established the Treasury Corporation of Victoria (TCV) and the
Victorian Funds Management Corporation (VFMC) to centrally manage the State’s
borrowing, investing and financial market activities. Public sector agencies that conduct any
borrowing and/ or investment transactions with these agencies would comply with this
Direction.
TCV manages the State’s borrowings and short-term deposits and facilitates financial
arrangements to hedge, protect or manage the value of assets and liabilities. VFMC
manages the State’s long-term investments and implements diversified investment
strategies. Public sector agencies should be aware that TCV or VFMC do not offer bank
overdrafts and leases.
TCV can advise on appropriate funding, hedging and short term investing structures taking
into account the financial requirements and risk appetite of the public sector agency. Where
it is clear that an Agency has a long term investment need, the Agency can approach VFMC
directly.
Agencies investing with VFMC must also develop an investment policy statement that—
a) contains guidelines for the management of the public body’s investments;
b) prior to being formally made or changed, has been given to DTF in draft for review
and comment;
c) has been approved by the responsible body; and
d) when made or changed, has been provided to DTF together with, for noting, a copy of
the minute documenting the approval of the responsible body.
The Department of Treasury and Finance can provide guidance with respect to this
requirement (refer contact details below).
Transition arrangements
In terms of transition arrangements, there may be a number of public sector agencies that,
prior to the issuance of this policy, have entered into short-term investments, such as term
deposits with commercial banks that may incur break costs if they are withdrawn prior to
maturity. Where substantial break costs for early withdrawal exist, these short-term
investments are permitted to continue to maturity, after which the proceeds must be
invested with the centralised agencies.
Department of Treasury and Finance contact details:
The Assistant Director, Financial Risk Management
Department of Treasury and Finance
Level 5, 1 Treasury Place
Melbourne VIC 3002
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Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
4.5.7
Foreign exchange risk management
Background
The objectives of this Direction are to ensure that foreign exchange risks are effectively
identified, assessed, monitored and managed by public sector agencies, and that the
strategies adopted by public sector agencies are consistent with the overall objectives of
Government.
The State has a conservative approach to the management of foreign exchange risks and
accordingly, public sector agencies are encouraged to develop specific measures that best
address the foreign exchange risk of their business.
Direction
A public sector agency that has a foreign currency exposure that is in aggregate
AUD1 000 000 or more and is known with certainty (with respect to the timing and a
minimum quantity) must fully hedge the exposure. Except with the prior written approval of
the Treasurer, all hedging transactions must be executed with TCV.
A public sector agency that has a foreign currency exposure that is in aggregate less
than AUD1 000 000 and is known with certainty must hedge the exposure where it is
considered material. The transaction must be with TCV or an Authorised Deposit-Taking
Institution (ADI).
The accountable officer must verify that the requirements have been complied with.
Exemptions to the requirements of this Direction may only be obtained with the written
approval of the Treasurer. This Direction does not apply to foreign currency exposures
incurred by a public sector agency where the funds are managed by VFMC, or by VFMC
acting as trustee on behalf of a public sector agency, nor does it apply to money held on
trust for the private sector.
Procedure
Relevant public sector agencies must—
a) conduct an annual review of their obligations under this Direction; and
b) identify and rectify any failure or deficiency in complying with this Direction.
Guideline
Foreign exchange risks are quantified by identifying all currently held assets and liabilities
denominated in foreign currency and identifying contractually committed future currency
transactions or cashflows. The foreign exchange exposure will exist until settlement or until
the exchange rate is fixed. The foreign exchange exposure is determined by aggregating
these balances by currency and settlement date and converting to Australian dollars at
current forward exchange rates.
Hedging transactions may only be closed out if a change in foreign currency receipts and
payments occurs and retaining the transaction results in a change in exposure levels.
Any funding bids that contain currency exposure should address the proposed currency
hedging strategy. Bids should price future foreign currency denominated payments at the
relevant forward rate which can be obtained from TCV. The preferred instrument for
hedging foreign currency risks is a forward foreign exchange rate contract. An option
strategy may be considered in exceptional circumstances, however this strategy will need to
be supported by a justifiable business case. In addition, the option premium costs will need
to be included in the funding bid.
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
59
For those public sector agencies which do not have legislative powers to enter into financial
arrangements, they should contact the Department of Treasury and Finance to arrange for
approval.
Transition arrangements
There may be a number of public sector agencies that, prior to the issuance of this direction,
have entered into foreign currency hedges with financial institutions other than TCV. These
hedging arrangements are permitted to continue to maturity, after which hedging
transactions involving foreign currency exposures that is in aggregate of AUD1 000 000 or
more must be executed with TCV.
Department of Treasury and Finance contact details:
The Assistant Director, Financial Risk Management
Department of Treasury and Finance
Level 5, 1 Treasury Place
Melbourne VIC 3002
4.5.8
Commodity risk management
Background
The objectives of this Direction are to ensure that commodity risks are effectively identified,
assessed, monitored and managed by public sector agencies, and that the strategies
adopted by public sector agencies are consistent with the overall objectives of Government.
The State has a conservative approach to the management of commodity risks and
accordingly, public sector agencies are encouraged to develop specific measures that best
address the commodity risk of their business.
Direction
A public sector agency is responsible for developing appropriate policies and procedures for
managing exposure to specific commodity risk where it is considered these risks could have
a material impact on the business.
A public sector agency must consider whether fully hedging the exposure is appropriate.
The accountable officer must verify that this requirement has been complied with.
This Direction does not apply to commodity exposures incurred by a public sector agency
where the funds are managed by VFMC, or by VFMC acting as trustee on behalf of a public
sector agency, nor does it apply to money held on trust for the private sector.
Procedure
Relevant public sector agencies must—
a) conduct an annual review of their obligations under this Direction; and
b) identify and rectify any failure or deficiency in complying with this Direction.
Guideline
Where a public sector agency has a material exposure to commodity risk, it should consider
fully hedging the exposure where it is known with certainty (with respect to the timing and
quantity) and there are hedging instruments available in financial markets to provide an
effective hedge that is also cost effective.
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Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
In accordance with Standing Direction 4.5.6 a hedging transaction must be executed by TCV.
Should TCV be unable to offer a suitable hedging product, Treasurer’s approval is required
to transact with an alternative counterparty.
For those public sector agencies which do not have legislative powers to enter into financial
arrangements, they should contact the Department of Treasury and Finance to arrange for
approval.
Transition arrangements
There may be a number of public sector agencies that, prior to the issuance of this direction,
have entered into commodity hedges with financial institutions other than TCV. These
hedging arrangements are permitted to continue to maturity, after which hedging
transactions must be executed with TCV.
Department of Treasury and Finance contact details:
The Assistant Director, Financial Risk Management
Department of Treasury and Finance
Level 5, 1 Treasury Place
Melbourne VIC 3002
Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)
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www.dtf.vic.gov.au
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Standing Directions of the Minister for Finance under the Financial Management Act 1994
(as part of the financial management package), June 2003 (updated May 2015)