Sharpening the Focus
A Framework for Improving
Commonwealth Performance
November 2012
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Commonwealth Financial Accountability Review
Department of Finance and Deregulation
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Parkes ACT 2600
Email: cfar@finance.gov.au
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Acknowledgments
Commonwealth Financial Accountability Review Team
Foreword
The Government is focused on identifying changes to the financial framework that can
boost government productivity, efficiency and performance, because a modern and
effective public sector requires a modern financial framework. A more effective framework
will help support a forward-looking public sector that can respond to the changing
circumstances of the twenty-first century.
Public agencies need to collaborate inside government and with other sectors of the
economy to address any given issue effectively. There is also an expectation on the public
sector to do more with less, at a time when citizen expectations of government continue to
rise.
The drive for cost-effective and responsive public services is likely to continue unabated. It
is, therefore, imperative that the Commonwealth’s financial framework promotes a public
sector that is efficient, innovative, flexible and transparent. It also needs to have strong risk
management practices and effective service delivery.
While the current financial framework has served us well, we need to make sure that the
architecture we have in place continues to ensure that the public sector delivers the policy
outcomes sought and deserved by Australian citizens. That is why we commenced the
Commonwealth Financial Accountability Review (CFAR) on 8 December 2010.
Earlier this year, I released a discussion paper, Is Less More? Towards Better Commonwealth
Performance, to seek the views of stakeholders and interested parties on the financial, legal
and governance aspects of the public sector financial framework. Over 70 organisations and
individuals responded to this paper, with a clear consensus emerging that change is due.
This position paper is the next phase of CFAR. Its purpose is to stimulate discussion and
debate on specific options for a future financial framework. It reflects input received in the
submissions to the discussion paper and through consultations to date, and focuses on
prioritising the reforms needed with firmer propositions for consideration. The proposals
outlined in the paper do not represent a final government position.
I commend this Position Paper to you and encourage you to put forward your views and
contribute to the development of the future financial framework for the Australian
Government.
Senator the Hon Penny Wong
Minister for Finance and Deregulation
iii
Invitation to respond
We are seeking your input on one, some or all of the proposals that are raised in this paper.
In particular, we are interested in your views on:
 whether the proposed reforms would help to improve the Commonwealth public
sector’s performance
 any additional reforms that could assist the Commonwealth public sector to operate
more efficiently and effectively.
Please keep in mind that the positions outlined in the paper do not represent the final views
of the Australian Government.
All information (including name and address details) contained in written responses will be
made available to the public on the Finance website unless you indicate that you would like
all or part of your response to remain in confidence. Legal requirements, such as those
imposed by the Freedom of Information Act 1982, may affect the confidentiality of your
written comments.
Submitting your comments
Written comments on the matters raised in the paper can be provided by:
 posting your comments on www.cfar.finance.gov.au, or
 sending an e-mail to CFAR@finance.gov.au.
I would appreciate your feedback on the matters raised in the position paper by no later
than 18 February 2013.
iv
Contents
Foreword ...................................................................................................................................iii
Invitation to respond ................................................................................................................iv
Executive summary ................................................................................................................... 1
Summary of proposals .............................................................................................................. 5
1
Introduction ..................................................................................................................... 8
2
Government as a whole ................................................................................................ 10
3
Independence ................................................................................................................ 13
4
Accountable performance ............................................................................................. 14
5
Engaging with risk .......................................................................................................... 20
6
Earned autonomy .......................................................................................................... 23
7
Joining up ....................................................................................................................... 26
8
Capability and culture.................................................................................................... 30
9
Public money is public money ....................................................................................... 32
10
Simplification ................................................................................................................. 34
Attachments
A: Background to CFAR ........................................................................................................... 44
B: Indicative content and structure of a single Act................................................................. 45
C: NSW Audit Office – governance lighthouse ....................................................................... 52
D: Small agency reporting requirements ................................................................................ 53
E: Example of a key priority reflected in annual appropriation Bills ...................................... 56
F: Possible timing for implementing CFAR reforms ................................................................ 57
v
Executive summary
There are costs and risks to a program of action, but they are far less than the longrange risks and costs of comfortable inaction.1
Governments everywhere are confronting a period of fiscal tightening that many have not
seen for decades. In implementing savings measures they are fundamentally rethinking the
ways in which public services are delivered, outcomes are measured and the quality and
responsiveness of public services are assessed in order to meet the increasing and changing
expectations of citizens. People expect more and they expect better.
The key to doing more with less in the public sector lies in productivity, innovation and
increased adaptability in the provision of programs and services. Governments need to
remain open to new business models and new technologies and be willing to phase out
existing practices when they are no longer appropriate. Future sustainability of Government
operations will depend on being open and receptive to change.
The Commonwealth Financial Accountability Review (CFAR) seeks to modernise the
Commonwealth’s financial and performance framework. The reform agenda touches all
aspects of government operations. The basic premise is to develop a framework that is
simple, adds value to all and is easy to use. The goal is a modern, streamlined and adaptable
public sector that is able to meet Australia’s changing needs. Background information on
CFAR is at Attachment A.
With broad input from across all levels of government, the private and not-for-profit sectors
and academe, the CFAR process to date has identified opportunities for reform that can
help to raise public sector productivity; enhance the public sector’s potential for innovation;
improve the performance of the public sector in meeting the government’s goals; gain the
best value for money spent on any particular purpose; promote high standards of
stewardship and accountability; and enhance transparency.
CFAR is not proposing a radical shift in public management, such as that which occurred
during the 1980s with the adoption of New Public Management. Rather, it is seeking to
integrate the best of the current management practices and the identified priorities for
reform into a more coherent whole.
The proposed reforms outlined in this position paper reflect the views expressed by
interested stakeholders in response to the CFAR discussion paper Is Less More? Towards
Better Commonwealth Performance that was released in March 2012. This includes
modifying or dropping a number of propositions that were not broadly supported.
1
John F Kennedy, viewed 2 October 2012, www.quotationspage.com/quote/29333.html.
1
The four guiding principles outlined in this position paper are that:
 government should operate as a coherent whole
 public money is public money, irrespective of whose hands it is in
 performance of the public sector is more than financial
 engaging with risk is a necessary step in improving performance.
The existing framework emphasises entity-based, vertical accountability. It operates with a
significant level of devolution at the entity level. The framework’s focus on entity
performance has contributed to some fragmentation of the whole-of-government
perspective and collective responsibilities of entities and places less emphasis on joining up
and systemic efficiency. What is needed is a more judicious balance between devolution
and central coordination, whole-of-government perspectives and agency perspectives,
along with appropriate levels of accountability.
The current framework devotes considerable attention to relatively technical issues, at the
expense of a broader focus on the purposes of public management. A key example of this is
the complexity surrounding the concept of ‘public money’. Public money is narrowly
defined in the Financial Management and Accountability Act 1997 (FMA Act), the
Commonwealth Authorities and Companies Act 1997 (CAC Act) makes only passing
reference to the concept, stating that CAC Act bodies ‘hold money on their own account’.
There is an opportunity to remove some of the ‘clutter’ and provide greater clarity on the
concept of public money. In turn, this will promote greater consistency in the application of
resource management principles, and the associated responsibilities and accountabilities
across all government bodies and relationships. Removing or streamlining redundant
technical detail will enable the public sector to focus on achieving its underpinning
purposes, which are much more than financial.
At present, the most readily available information in the public sector tends to be financial
in nature, which, of itself, does not provide insights into whether publicly funded programs
and activities are achieving their objectives and outcomes. Measuring performance in the
public sector requires adequate and relevant non-financial information. Addressing the
current imbalance would help to shift the focus from expenditure towards service delivery
and outcomes. It would also provide greater capacity to assess the ongoing base of
programs and policies against new ideas and the new pressures faced by government. This
would all be aided by a renewed focus on systematic evaluation.
2
The concept of earned autonomy is central to the reforms being proposed under CFAR.
Rather than applying a one-size-fits-all approach to regulation within government, the
nature and extent of regulatory intervention under an earned autonomy model would be
dependent on an entity’s risk profile and performance. For example, regulatory
requirements could be varied by the Finance Minister or the government to address the
differences between high-risk operations and low-risk operations, or between
high-performing organisations and organisations in more difficult circumstances. While this
occurs to an extent under current settings, the application of regulations to entities could
be more nuanced and transparent in the framework.
In common with many other proposed reforms, an earned autonomy model would require
a cultural change in the way in which risk is assessed and managed across the
Commonwealth. In the CFAR consultations, a number of parties noted a growing aversion to
risk across the Commonwealth. They noted a tendency to respond to perceived risks and
failure with more rules, tighter controls and increased reporting. Increased regulation was
seen as having become a first option response to problems, without adequately examining
the relative costs and benefits of alternative approaches.
An overarching framework for handling risk across the Commonwealth would underpin the
earned autonomy model. Such a risk framework can help tailor financial and accountability
arrangements, both within government and for those with whom the government partners.
It would elevate risk practices across the Commonwealth.
Another major challenge for the public sector is to identify and pare away unnecessary red
tape and framework requirements. Many existing requirements are deeply embedded in
the public system, which results in continuing unproductive tensions between the
conditions required for sound management, the political process and accounting for public
resources. Fewer, and better targeted, requirements in the framework are likely to lead to
greater productivity and innovation, but governments and parliament will need to be
comfortable with such changes in the context of their own tolerance for risk.
The CFAR consultation process sought to gain a better understanding of the underlying
causes of regulatory creep and red tape. Participants in the consultations emphasised that,
if these causes are not addressed, the compliance burden would continue to increase not
only for government entities, but also for their partners. When additional specificity and
new requirements are considered necessary, the rationale should be clearly articulated and
all parties should reflect on the balance between benefit and cost.
Many of the reforms proposed in this paper can be accomplished without significant
legislative reform; cultural change will be paramount. However, legislative change will be
needed to embed the reform direction, especially in relation to improving the
Commonwealth’s risk focus and simplifying requirements to reduce the compliance burden.
3
The proposed reforms outlined in this paper do not always represent consensus views.
Nevertheless, care has been taken to design reforms that can provide sustainable benefits
for the Commonwealth over the long term. While there is an emphasis on strategic
direction and coordination, allowing for the appropriate level of operational independence
of individual entities is a central consideration.
The reforms will take several years to implement and integrate into the practices of
Commonwealth entities. This is not a bad thing; gradual introduction of the reforms will
ensure they are appropriately tested and refined in light of experience. Feedback received
on the CFAR discussion paper emphasised the importance of getting implementation right.
In particular, stakeholders expressed a strong view, adopted in this paper, that
implementation should be staged, to minimise disruption to entity operations and the
functions of government, and that it should be appropriately resourced.
To ensure that the proposed changes to the framework can meet the changing needs of the
Australian community, and yet be of lasting value, the reforms proposed in this paper are
largely principles-based, with flexibility to accommodate a rapidly evolving operating
environment.
4
Summary of proposals
Set out below are the proposals for reform outlined in the paper.
Government as a whole
The key legislative proposal of this paper is that a single Act that sets out the fundamental
elements of the financial framework should replace the current model that distinguishes
between FMA and CAC Act bodies.
To enable more connected portfolio arrangements, legislation should articulate the role of
departmental secretaries in advising responsible ministers on the performance of portfolio
bodies.
Independence
The financial framework ought not, in itself, determine the level of independence an
organisation exercises.
Accountable performance
To increase clarity, the high-level stages of the resource management cycle should be
recognised in the financial management legislation, with appropriate links to the budget
framework.
Financial framework legislation should better reflect the roles of chief executives and
directors in providing estimates to support government decision-making and in meeting
reporting obligations.
Given its importance, explicit obligations should be placed on chief executives and directors
in legislation for the quality and reliability of performance information.
Evaluation should be more systematic and better linked to the budget process.
Finance should play a stronger role in fostering a culture that values more systematic
evaluation.
There should be a clear line of sight between appropriations, Portfolio Budget Statements
and the information contained in annual reports to allow comparison of planned and actual
performance.
5
Engaging with risk
Chief executives and directors, as well as decision-makers at different levels, should be
made explicitly accountable for oversight and management of risk in legislation.
An overarching risk management framework for the Commonwealth should be developed
to set the context for entities’ risk management practices.
Earned autonomy
Instead of a one-size-fits-all approach to regulation, an earned autonomy model should be
implemented.
Joining up
Legislation should make it clear that the responsibilities of public officials can extend
beyond their individual organisations to include wider government objectives.
Legislation should better accommodate the concepts of collective responsibility and
multiple accountabilities.
Consideration should be given to expanding the menu of options available for structuring
entities to facilitate increased collaboration and collective responsibility.
The framework should provide greater flexibility for moving appropriated money between
entities involved in joint activities.
The burden on grant applicants should be reduced.
Capability and culture
Finance should enhance the training it provides and improve the quality of its guidance
material.
Public money is public money
The concept of public money should be clarified. Generic rules should apply to all public
expenditure and there should be no perceived advantage or disadvantage in terms of public
accountability arising from the different classifications of entities.
Consideration should be given to centralising the holding of public money, but allowing
entities that have a clear business need to hold money on their own account to do so,
taking into account constitutional and operational issues.
6
Simplification
Compliance requirements should focus on areas of high risk, without prescribing procedures
that are better addressed through internal controls.
Prescriptive requirements such as FMA regulation 9 should be removed from the
framework.
Reporting requirements should be periodically reviewed to ensure they continue to meet
their intended objectives efficiently and effectively.
Tiered financial reporting arrangements should be established that are appropriately
calibrated to relevant entities or programs.
Consideration should be given to allowing entities to spread cash across years in order to
effectively run their operations, without detracting from overall budget and expenditure
control.
To simplify the whole-of-government management of appropriations the framework should
be amended so annual appropriations lapse automatically after a suitable period of time.
Moving to cash appropriations, based on the net annual cash requirement of an entity as
shown on its cash flow statement, would further simplify the landscape.
The preferred position in this paper is to appropriate by entity and/or key priority.
The role of the Finance Minister in approving, or creating, special appropriations should be
clarified to better recognise the Minister’s custodianship role in relation to government
finances.
The capacity to establish and abolish statutory corporations through a single piece of
legislation should be examined.
7
1
Introduction
‘The sheer size and reach of the public sector has a major impact on Australia’s overall
economic performance and competitiveness. Well-managed government operations
contribute to a more competitive Australia. It will, therefore, always be necessary for
governments to economise in the sense of preventing waste and gaining the best value for
money spent on any particular purpose’.2
A more economical, efficient and effective public sector is a common desire of many
countries, and is not a new ambition. The Organisation for Economic Co-operation and
Development (OECD) has noted that countries are establishing frameworks for the
management of public services that encourage not only confidence in government, but also
efficiency, productivity and effectiveness.3
As the pace of economic and social change quickens, governments must be more
responsive than ever. At the same time, public finances are under increasing pressure and
the public sector is expected to do more with less. This includes covering a range of risks
that may not previously have been considered the responsibility of the public sector.
While a key challenge ahead is fiscal affordability and sustainability, the public sector is also
facing a number of other pressures and challenges in the medium to long term. These
include economic restructuring, demographic change, increasingly complex policy issues,
technological innovation, rising citizen expectations, new global challenges like climate
change and the financial crisis, and the reorientation of much global activity to Asia.
Changes are already occurring in the way government meets citizens’ expectations and
policy challenges. Increasingly, the government collaborates and partners with other
jurisdictions, sectors and organisations in designing and delivering services. Over time
service design and delivery are likely to include greater participation by citizens. This new
paradigm will challenge historical concepts of accountability, transparency and bureaucratic
control.
The framework (the laws, rules and practices) within which government operates in order
to achieve broad outcomes needs to provide sufficient flexibility to meet policy objectives
that require networked and horizontal alignment across entities, jurisdictions and sectors,
such as environmental sustainability or improving healthcare. The framework must also be
sufficiently adaptable to readily accommodate new technology, which will continue to be an
important enabler of change in the way public services are delivered.
2
R Mulgan, ‘Academics, public servants and managerialism’, Canberra Bulletin of Public Administration, no. 78,
August 1995, p. 8.
3
Organisation for Economic Co-operation and Development, The State of the Public Service, OECD, Paris, 2008,
p. 9.
8
Transparency and accountability will remain important considerations for the
Commonwealth’s financial framework. However, to allow the public sector to keep pace in
a rapidly changing operating environment, these considerations need to be balanced with a
greater focus on government effectiveness and policy implementation. Participants in the
CFAR consultations suggested that this will require more than incremental or piecemeal
reform of the framework. Consequently, a number of the ‘givens’ that have evolved over
time in the framework are being challenged in this paper.
9
2
Government as a whole
‘The complexity of the challenges facing Australia means that the APS [Australian Public
Service] needs to be agile to adapt and stay ahead of the game. In policy development
and service delivery the APS needs to work together as one organisation so that it is
equipped to tackle multi-dimensional and interrelated issues.’4
The starting premise for CFAR is that ‘government’ should not be viewed as a group of
individual entities working in isolation, and only coordinating with other entities as needed,
but rather as a coherent and connected group of entities working cohesively as required to
deliver services to citizens.
A devolved framework allows for operational flexibility and for decisions to be made at the
most appropriate level. However, devolution needs to be complemented by an
accountability framework that promotes coherence, consistency and coordination from the
centre to achieve strategic policy goals. The CFAR discussion paper showed that the current
framework has some deficiencies in this area.
The current framework distinguishes between FMA Act agencies and CAC Act bodies.
Different rules have evolved around this distinction; and considerable effort goes into
negotiating the distinction, assigning to it an overstated significance.
A single Act
The key legislative proposal of this paper is that a single Act that sets out the fundamental
elements of the financial framework should replace the current model that distinguishes
between FMA and CAC Act bodies.
A single Act would give clear expression to the unifying philosophy and practice of
government as a single polity. A single Act would build on the strengths of the existing
framework and better articulate a coherent system for entity performance and public
accountability; reduce the perception that being under one set of rules or another makes an
entity either more central or more peripheral to government; and better allow the centre to
coordinate and provide strategic direction consistent with government priorities.
A single Act would foster a more flexible public sector. It would preserve the best of existing
arrangements, while addressing current limitations in the FMA and CAC Acts. Expressed as a
set of principles, it would be flexible enough to accommodate the full spectrum of
government operating requirements.
4
Advisory Group on Reform of Australian Government Administration, Ahead of the Game: Blueprint for the
Reform of Australian Government Administration, Department of the Prime Minister and Cabinet, Canberra,
2010, p. 10.
10
Increased flexibility, however, has the potential to increase complexity. Providing greater
flexibility in organisational structures comes with a requirement for greater consideration to
be given to the appropriate structure, and financial obligations, of each government entity.
Having a single Act that sets out government performance and accountability arrangements
is not unusual. The former Audit Act 1901 was a single-Act system and in its report on
updating the Audit Act 1901, the Joint Committee of Public Accounts recommended a single
Financial Administration Act covering all Australian Government entities.5 Other
jurisdictions also operate with one Act.6 Early consideration about the content and structure
of a single Act is provided at Attachment B.
An alternative to a single Act would be to retain the current bifurcated structure and make
matching amendments to the FMA and CAC Acts to capture most of the proposed reforms.
However, this would be a less coherent approach, preserving distinctions that some of the
key reforms seek to undo to improve accountability and performance.
Core obligations for Commonwealth entities
A simpler and clearer Act that sets out broad goals, and prescribes only what is necessary to
achieve and account for them, can support the effective stewardship of public money and
promote innovation and improved performance.
A single Act would establish a core set of obligations that apply to all Commonwealth
entities. The obligations would be simple, principles-based and aim to form a coherent
system. The starting point for drafting the new legislation would be to take the
requirements in the CAC Act and adjust them where appropriate for key parts of the
FMA Act. The core obligations in the CAC Act are generally seen to be less prescriptive and
more flexible than those in the FMA Act, and there is no evidence to suggest that CAC Act
bodies operate with less efficacy than FMA Act agencies in the management of
Commonwealth resources.
Core obligations would focus on the essential elements of governance, stewardship and
performance management necessary to provide appropriate accountability to parliament
and the public. One potential approach could be to adapt the ASX corporate governance
principles to Australian Government entities.7 Attachment C shows how the NSW Audit
Office has adapted the ASX governance principles for the purposes of public sector
governance.
Core obligations would be supplemented by separate sets of tailored regulations for
different types of entities, such as Government Business Enterprises and Commonwealth
companies, as is currently the situation under the CAC Act.
Joint Committee of Public Accounts, Report 296: The Auditor-General – Ally of the People and the Parliament:
Reform of the Australian Audit Office, Australian Government Publishing Service, Canberra, 1989,
recommendation 18:24.
6 For example, Canada has the Financial Administration Act 1985 and Western Australia has the Financial
Management Act 2006.
7
ASX Corporate Governance Council, Corporate Governance Principles and Recommendations, 2nd edn, 2007.
5
11
Enhancing portfolio arrangements
The focus of the current framework is entity-based and gives insufficient consideration to
the need for entities with similar areas of focus to work together. The framework could
better accommodate more integrated arrangements and address the risk that matters may
fall between the responsibilities and accountabilities of individual entities.
More connected portfolio arrangements could allow for better strategic planning and
coordination by government in key areas and achieve efficiencies and economies of scale,
without adversely affecting managerial autonomy and flexibility.
To enable more connected portfolio arrangements, legislation should articulate the role
of departmental secretaries in advising responsible ministers on the performance of
portfolio bodies. To further enable such arrangements, legislation would allow (but not
mandate) the establishment of a portfolio board, which could include non-executive
members, as one mechanism to support secretaries in fulfilling their responsibilities.
Greater focus on operational issues at a whole-of-portfolio level could free small agencies
from some regulatory requirements and other day-to-day administration, allowing them to
focus more of their resources on policy and service delivery outcomes. Some functions,
such as payroll, accounts payable and receivable, and internal audit, can already be
consolidated at the portfolio level with the agreement of affected agencies. Portfolio-level
(or sector-level) chief finance officers and audit committees could also be considered in
suitable circumstances. Any portfolio-wide arrangement should be designed to ensure that
the interests of smaller agencies are appropriately considered.
Stronger portfolio governance arrangements involving larger entities may also provide
potential efficiency gains and other benefits, as demonstrated by the consolidation of the
Human Services portfolio, through the Human Services Legislation Amendment Act 2011, on
1 July 2011. In New Zealand, the three biggest departments in the justice sector are
increasingly seeking to work together to better leverage their individual policy, financial and
physical resources to reduce costs and achieve better results.
12
3
Independence
There is a tension between the level of independence some entities perceive they have
from government and the accountability for efficient resource management placed on their
responsible ministers by parliament. Entities that have a level of independence are still
subject to government decisions on resource management, including through the budget
process.
Significantly, the FMA and CAC Acts are not determinants of independence; the extent of an
entity’s independence is established through its enabling legislation or other
documentation. In particular, the operational purpose of an entity is described in enabling
legislation, as is the extent of discretion the entity has in pursuing that purpose. The CFAR
consultations indicated that some mistakenly believe that placing an entity under the CAC
Act provides more independence than placing it under the FMA Act.
Aspects that may contribute to some entities seeing their independence as being wider
than can be established through their enabling legislation include:





the operation of boards
CAC Act bodies holding money ‘on their own account’
amounts appropriated to CAC Act bodies being paid through the portfolio
department
the requirement under the CAC Act for the issuance of General Policy Orders8
a perception that ‘commercial principles’ apply to some CAC Act bodies.
The financial framework ought not, in itself, determine the level of independence an
organisation exercises.
8
Bodies under the CAC Act are not automatically subject to government policies. CAC Act bodies must have
the policy specifically applied to them through a General Policy Order, which is issued by the Finance Minister
under section 48A of the CAC Act.
13
4
Accountable performance
A well-designed performance and accountability framework is essential to ensure that
government is operating efficiently, effectively and transparently. It can help government to
prioritise policies and programs and allocate resources, as well as organisations and
individuals to evaluate and improve their performance.
An overarching performance management framework
The Australian Government produces extensive performance information. For example, the
discussion paper noted that there is a substantial volume and variety of information
presented in Portfolio Budget Statements and annual reports, which run into the tens of
thousands of pages.
Producing voluminous quantities of information does not in itself constitute an integrated
performance framework, especially when it is difficult to synthesise all the sources of
information and get a clear picture of performance. It is preferable to have fewer, more
meaningful indicators that focus on what matters.
While a more holistic approach is taken in some areas of government activity – such as
border protection and some Indigenous programs – the focus of performance management
in the Australian Government is still largely at an entity level. Setting and monitoring
outcomes of individual entities, while useful, is insufficient.
The practice of some Australian states and territories and a number of other countries has
moved beyond an entity focus to incorporate whole-of-government outcomes along with
suitable indicators to track progress towards achieving them. Looking at performance
management in other jurisdictions, the Scottish National Performance Framework stands
out for its clear and simple articulation of the strategic direction of the government and the
associated performance measures.9
An overarching performance framework can help to shift the focus of portfolios and
individual entities from new policy to the overall direction. It can help provide a more
strategic focus so that resources will be allocated where they are most likely to maximise
the achievement of outcomes for citizens. It could also help government to reprioritise and
reorganise where necessary to deliver appropriate solutions and to discontinue approaches
that no longer work.
A strengthened performance framework with clearly defined goals and measures would
allow parliament to more meaningfully assess performance.
9
The key feature of the Scottish framework is that the line of sight from purpose down to delivery and back
has been made explicit. It is possible to map how the 15 national outcomes cluster around five strategic
objectives, all sitting beneath the overarching purpose. Forty-five national indicators measure how Scotland is
performing in achieving those outcomes.
14
Resource management cycle
Linking the key elements of resource management will help to set overarching strategic and
policy goals to guide the disparate activities of government. The objective should be to have
a clear cycle of planning, measuring, evaluating and reporting of results to parliament,
ministers and citizens.
The Financial Management Improvement Program, launched in 1984, was an important
attempt to achieve such clarity and strong linkages.10 It focused on the purposes of
programs and the cost-effective achievement of outcomes, rather than simply on inputs
and processes.11 The program was based on the following simple cycle:
Source: Management Advisory Board& Management Improvement Advisory Committee, Accountability in the
Commonwealth Public Sector, Australian Government Publishing Service, Canberra, 1993, Appendix 3.
Some of the clarity provided by this simple conception has been lost over time. Moreover,
the financial framework does not currently draw links to planning, budgeting or evaluation
activities.
Developing and implementing an integrated resource management cycle for the
Commonwealth, to guide both the government as a whole and entities individually in
managing resources, would provide benefits in resource allocation and performance
evaluation. Some relationships, like that between reporting and key stages of management,
could be articulated more clearly. More emphasis should also be placed on the availability
of good quality performance information to support policy and budget processes, for both
evaluating new initiatives and increasing the level of scrutiny applied to ‘base funding’, by
systematically reviewing ongoing programs and expenditures.
To increase clarity, the high-level stages of the resource management cycle should be
recognised in the financial management legislation, with appropriate links to the budget
framework.
10
Task Force on Management Improvement, The Australian Public Service Reformed: An Evaluation of a
Decade of Management Reform, December 1992, p. 250.
11
M Keating & M Holmes, ‘Australia’s budgetary and financial management reforms’, Governance: An
International Journal of Policy and Administration, vol. 3, no. 2, April 1990, p. 174.
15
Closer link between budgeting and financial management
Despite the obvious connection between budgeting and financial management, the link
between the two in legislation is tenuous. The FMA and CAC Acts, for example, contain
limited references to an entity’s responsibilities related to receiving funding from the
budget, including budget process obligations.
There should be a clear recognition that entities have responsibilities, in varying degrees, to
enable the government to meet its priorities and its obligations to parliament, including
through the provision of information.
Financial framework legislation should better reflect the roles of chief executives and
directors in providing estimates to support government decision-making and in meeting
reporting obligations. Articulating accountability for preparing budget estimates along lines
similar to the requirements for preparing financial statements in the current FMA Act and
CAC Act could help improve their quality and timeliness.
Setting any additional requirements in financial framework legislation would need to be
done carefully. One of the strong benefits of the Australian budget framework is its ability
to react to emerging demands. Codification of requirements in legislation should be done
only in a manner that allows executive government to address wider economic
circumstances.
Performance information
Performance information is crucial to assessing whether policy goals have been achieved
and how effectively the public sector has performed. The capacity to undertake this analysis
is dependent on providing high-quality and robust performance information. Meaningful
performance information would tell parliament and the public what the government is
planning to do and what it has achieved.
By comparison, poor quality performance information means that resource allocation
decisions are based on imperfect knowledge of what is being achieved. This invites low
confidence in the value that the government delivers to the community and in its ability to
use resources effectively.
Australian Government departments and agencies currently report against some 3,500 key
performance indicators, yet it is still difficult to get an accurate picture of the performance
of a number of programs across the public sector. This problem will be exacerbated as
government increasingly partners with third parties in the delivery of programs and
services.
Given its importance, explicit obligations should be placed on chief executives and
directors in legislation for the quality and reliability of performance information. Explicitly
requiring chief executives and directors to provide relevant and appropriate performance
information could be one way of focusing attention and resources on this key area and
could underpin efforts to improve performance and transparency.
16
Any requirement imposed on chief executives or directors should be principles-based and
recognise the practical challenges and costs of developing good quality performance
information, such as data collection. Challenges include the nature of policy and research
work in the public sector and the effect of external factors on program performance, which
can make it difficult to isolate the direct results of particular policies and actions.
This requirement would be less prescriptive than that, for example, in the United States,
where a statutory regime for performance management and accountability has been
established, through the Government Performance and Results Act of 1993 and the
Government Performance and Results Modernization Act of 2010.
The Department of Finance and Deregulation (Finance) will need to increase the practical
support it provides to entities on performance management, including on developing and
disclosing relevant and appropriate performance information. Mechanisms could include
comprehensive guidance and a web-based assessment tool.
Benchmarking
Having clear metrics on like activities across entities can significantly improve the quality of
the debate on efficiency in the delivery of some public sector services. Comparative
benchmarking is one way to promote ongoing performance improvement across
government. Government practice in this area could do with further development. Options
being considered in this area include presenting metrics in the Portfolio Budget Statements
or other existing reports, or presenting them separately in a high-level, dashboard-style
report.
Evaluation
Sustaining high-quality public sector performance and accountability requires targeted and
relevant evaluation.
In the late 1980s and the 1990s there was a major push on program evaluation; agencies
were required to review programs every three years, with significant input from Finance.
Since then, a lot of this effort has fallen away.
Currently, assessment of the efficiency and effectiveness of government spending, and
whether it offers value for money, tends to be uncoordinated – it is more episodic than
systematic. The quality of performance monitoring and evaluation across agencies, policies
and programs is variable.
17
While there are some programs (particularly some large ones) that benefit directly from
good evaluation practices, the average quality appears to be low. Even where good
evaluation and review processes exist, the data is not readily available to inform
government decision-making, especially on cross-portfolio matters. There is substantial
scope to improve the transparency of what entities achieve with their expenditure.
Evaluation should be more systematic and better linked to the budget process. Systematic
evaluation can influence performance and behaviours on the ground,12 and help to identify
good practice and areas for improvement in a more timely way.
Finance should play a stronger role in fostering a culture that values more systematic
evaluation. Leadership is critical in developing consistent interest in evaluations and a
commitment to use the information in the decision-making processes of government.
Clear line of sight
The public sector, on behalf of the taxpayer, manages some $370 billion of public money
each year. It is essential that the government has good information about what it plans to
spend, what it actually spends and what it achieves.
Clear and regular reporting underpins accountability and transparency by showing the
extent to which government has achieved policy objectives, effectively delivered services
and satisfied legislative and stewardship obligations during the reporting period. Improving
transparency would support open government.
Under current arrangements, a number of different systems are used for presenting
information on government expenditure and performance. Governments produce budgets
to plan what they will spend; then present appropriation Bills to parliament for approval;
and finally, after the financial year’s end, publish consolidated financial statements and the
final budget outcome. Entities publish their own budget statements and annual reports.
There should be a clear line of sight between appropriations, Portfolio Budget Statements
and the information contained in annual reports to allow comparison of planned and
actual performance. There is still considerable scope to enhance transparency in this area
and provide parliament with a better basis for scrutiny.
Further work is needed to identify whether redesign and alignment of existing documents
would improve the line of sight for the reader, or whether greater attention should be given
to corporate planning (as is the case with Government Business Enterprises).
12
NSW Commission of Audit, Final Report – Government Expenditure, NSW Government, May 2012, p. 342.
18
Access to information
How public sector reporting is communicated significantly affects the usefulness of the
information that is reported.
Government reporting has generally become more complex, requiring users to have greater
government and financial expertise. In all likelihood this complexity deters citizens –
individually or in groups (with limited exceptions, such as parliamentarians and lobby
groups) – from accessing and using detailed public reporting information. Government
reporting should be easy to find and easy to interpret.
Simplified reporting that integrates key financial and non-financial information with a
narrative about performance would promote greater accessibility of government reporting.
Some jurisdictions (for example, the United States) produce concise and targeted reports,
such as a ‘citizen’s guide’, which provides simplified performance information to users.
Users would also be assisted by government entities progressively releasing more data and
web tools, consistent with the Creative Commons approach as agreed by government. This
would allow users to customise and analyse the data to address individual queries.
19
5
Engaging with risk
‘Risk management is the culture, processes and structures that are directed towards
taking advantage of potential opportunities while managing potential adverse
effects.’13
A more productive, innovative and efficient public sector will require a different approach
to managing risks and to assessing risk management by parliament, the public and the
media. Managers are unlikely to implement new practices if penalties for failure are
disproportionate to the rewards of success, or if there is little tolerance for failure under
any circumstances.
The pressure of scrutiny can weaken the will of managers to engage constructively with risk.
Greater transparency is too often transformed into a public culture focused on
wrongdoing.14 The parliament’s attitude to risk can significantly influence the public sector’s
tolerance for risk and detract from a positive risk culture, intelligent risk-taking and
innovation.
The government has strengthened risk assessment processes by introducing tools,
templates and a more integrated approach to centrally commissioned assurance processes.
However, opportunities exist to further strengthen, clarify and embed end-to-end risk
management practices across the Commonwealth.
The CFAR consultations confirmed that, while processes, guidance and feedback loops can
be enhanced, a significant cultural shift is required to support a more systematic approach
to risk management across the Commonwealth.
Recognising risk management in legislation
Even though managing risk is important for the Commonwealth, there is no explicit
reference to risk management in current financial framework legislation. The
Commonwealth also does not have an overarching risk management framework. Entities do
not, therefore, have a whole-of-system context within which to set their own risk strategies,
including appropriate risk thresholds, although many entities have robust risk management
systems in place.
13
ASX Corporate Governance Council, Corporate Governance Principles and Recommendations, 2nd edn, 2007,
p. 32.
14
P Shergold, ‘Public service renewal: reform, tradition and challenge’, Manion Lecture, Canada
School of Public Service, Toronto, 2007, p. 5.
20
Chief executives and directors, as well as decision-makers at different levels, should be
made explicitly accountable in legislation for oversight and management of risk. This
would require entities to establish policies for identifying, measuring, managing and
reporting material risks and to report to government on these risks. Legislative change
would send an important signal that risk management is a key responsibility and requires a
commitment of resources.
Any legislative provisions should be sufficiently flexible to allow entities to tailor risk
practices to their operations and readily adapt practices as necessary, including to meet the
needs of government and parliament. They should not go as far as specifying particular
practices at a detailed level.
Any changes to legislation should reflect the practices currently required by listed
companies to demonstrate their compliance with the ASX’s Corporate Governance
Principles and Recommendations, as those practices are equally appropriate for public
sector entities.
An overarching risk management framework for the Commonwealth should be developed
to set the context for entities’ risk management practices. This would complement the
recognition of risk in legislation. Singapore, for example, has established a whole-ofgovernment integrated risk management framework to evaluate and prioritise risks and to
help identify cross-agency risks that may have fallen through gaps in the system.
A positive risk culture
Cultural change begins with people, and no organisation can move from a risk-averse to a
risk-smart culture without supporting its employees.15 Individuals need to be empowered to
take prudent, common-sense risks to achieve better outcomes. An appetite for risk is crucial
for innovation.
Appropriate risk-taking and innovation are consistent with careful and proper control of
public resources. The Auditor-General has noted that parliamentary committees have
generally supported the application of risk management as an integral part of good
management practice, and recognised the benefit from realising opportunities. 16
Leaders and managers will be more willing to take appropriate risks and innovate in a
culture that accepts that some failures will occur, but they will not lead to adverse personal
consequences if proper risk management practices have been followed.
15
CCAF-FCVI, Taking Chances: Finding Ways to Embrace Innovation, Risk and Control in Public Sector
Organizations, CCAF, Ottawa, 2009, p. 4.
16
I McPhee, ‘Risk and risk management in the public sector’, keynote address to the 2005 Public Sector
Governance and Risk Forum, September 2005, p. 3.
21
Judgment is central to handling risk effectively. To build judgment, people need real
experience, which means that sometimes people will try things and get them wrong. This
should be accepted as part of the learning process. People should be encouraged to
acknowledge mistakes quickly and, most importantly, to learn from them.17
Each government organisation needs to articulate its own tolerance to risk based on the
circumstances that it faces across the range of activities it undertakes. The common
hallmarks of organisations that manage risk well include:
 a culture where management is willing to deal with risk, be accountable and take
responsibility, including appropriate support mechanisms when things go wrong
 a governance framework where risk is managed proactively and decisions are informed
by timely and accurate risk information, including early reporting when things are going
off track
 active, open and consistent discussion of culture and attitude to risk among senior
management and communication of expectations to staff.
More will need to be done to support entities in setting an appropriate appetite for risk and
recognising that a level of risk-taking is crucial for innovation. 18 While reckless risk-taking
still needs to be exposed and criticised, the public sector must accept that, in an increasingly
complex operating environment, it will have to experiment, manage risk, fail, learn and then
start over with the aim of doing better.
17
I Watt, ‘The APS: now and in the future’, National Press Club, Canberra, 22 November 2011.
Comcover’s Risk Management Benchmarking Survey indicated that not all public sector organisations have
the positive risk culture necessary to support good risk management. In Comcover’s experience, creating the
right culture for managing risk relies on the people at the top. When individuals or ‘champions for risk’ change
in an agency, the culture for managing risk can also change.
18
22
6
Earned autonomy
One of the common complaints about the current framework requirements concerns the
one-size-fits-all approach to the imposition of obligations on agencies. This approach is not
sustainable and can impose unnecessary requirements on entities. A more nuanced and
proportionate approach to risk could contribute to more effective monitoring and oversight
arrangements. The aim would be to improve accountability and performance through
managing risk not through increasing control.
Instead of a one-size-fits-all approach to regulation, an earned autonomy model should
be implemented. This would be based on specifying a core set of minimum requirements
across all entities and varying those requirements based on the risk profile of an entity. The
nature and extent of oversight and regulatory intervention exercised by the centre will
depend on an entity’s risk profile and performance.
The concept of earned autonomy is premised on the notion that devolution provides
important benefits to Commonwealth operations in terms of agility, innovation and
improved performance. The emphasis on devolution needs, however, to be supplemented
with appropriate attention to performance and risk. The system should reward good
performance and discourage poor performance, while minimising perverse incentives.
While some controls will always need to be in place, earned autonomy requires confidence
in the idea that entities set out to achieve results within the law and in accordance with the
government’s policy priorities, including budgetary settings. At the same time, it needs to
be recognised that entities and individuals do sometimes transgress in the law and fail to
meet their obligations. The framework needs to continue to focus on appropriate responses
to fraud and mismanagement.
Broad principles for the earned autonomy model would be based on the better practice
principles for regulators identified by the Productivity Commission, which include:
 streamlining reporting requirements
 risk-based monitoring and enforcement
 graduated response to regulatory and compliance breaches
 clear and timely communication.19
An earned autonomy model can help to ensure that new compliance and regulatory
requirements are properly targeted, rather than being a universal blunt instrument or
disproportionate response to a problem. However, implementing the model will require
enhanced capabilities and improved information flows between line agencies and the
centre and is likely to take some time.
19
Productivity Commission, Identifying and Evaluating Regulatory Reforms, Research Report, Canberra, 2011,
p. XV.
23
Risk-based regulatory framework
While Finance has a central role in advising on and administering the financial framework, it
is the regulatory stance of Finance and the Finance Minister, other central agencies and
oversight mechanisms like the Australian National Audit Office (ANAO) and parliamentary
committees that together determine the scope and nature of compliance requirements
imposed on entities.
How these bodies undertake their individual roles affects the behaviour of entities just as
much as the regulations themselves. For example, whether entities focus resources more
on compliance or performance can be influenced by whether the framework is
administered with undue legalism or prescription, or whether a risk-based approach is used
to match regulation to requirements. Some of the feedback received during the CFAR
process was that Finance was not always consistent on this front across its many areas of
operation.
The starting point for implementing an earned autonomy model would be an assessment of
risk. The risk assessment model used by the Australian Prudential Regulation Authority to
inform its regulatory activities 20 could provide a starting point for compiling an entity’s or
program’s risk rating, noting that risks of concern to government and parliament may be
more multi-dimensional than prudential risks. Inputs to the process could include the
information already collected by Comcover to produce its profiles of the risk maturity of
entities, together with findings from ANAO audits. Using multiple sources of data would
allow the construction of an overall risk rating for an entity or program, which would then
be used to determine compliance settings.
Risk ratings could be used to set regulatory requirements that are adjusted in an escalating
fashion. One approach to escalation would be to use a mechanism similar to the
enforceable undertakings that can be imposed by the Australian Securities and Investments
Commission (ASIC). The Australian Taxation Office’s (ATO’s) compliance model also provides
some guidance on how a nuanced approach could be implemented.21
20
In October 2002, the Australian Prudential Regulation Authority introduced new risk assessment and
supervisory response tools known as the Probability and Impact Rating System (PAIRS) and the Supervisory
Oversight and Response System (SOARS). Under PAIRS, supervised institutions are classified according to the
probability that an institution may be unable to honour its financial promises to beneficiaries. SOARS is used
to determine how supervisory concerns based on PAIRS risk assessments should be acted upon.
21
The compliance model is a structured way of understanding and improving taxpayer compliance. It helps
the ATO to understand the factors that influence taxpayer behaviour and to apply the most appropriate
compliance strategy. The compliance model also summarises the different sorts of support and intervention
that the ATO may need to provide to collect the required revenue.
24
Finance as the Commonwealth CFO
Effective implementation of an earned autonomy model will require Finance to place a
greater emphasis on assessing agency and program performance. In addition to performing
its traditional role, Finance will need to enhance its business analysis and regulatory
capabilities to identify where support and intervention should be targeted.
Chief financial officer (CFO) areas of large private sector organisations may provide some
insights into alternative models for regulating and monitoring performance and financial
management practices across the Commonwealth. Evidence gathered during the CFAR
consultations suggests that in the private sector the centre often has more direct access to
information from organisations within the corporate group than is common in the public
sector.
The success of the earned autonomy model will hinge on establishing and maintaining highquality relationships. This will require improved openness in the working relationships
between Finance and entities. Individuals and organisations will require clarity about how
requirements will be implemented, monitored and enforced.
25
7
Joining up
Effective collaboration between Commonwealth entities, with other levels of government,
and with the private and not-for-profit sectors, is critical to the achievement of the
government’s priorities and national goals. A diversity of views and expertise is essential for
developing policies and plans to deal with ‘wicked problems’, such as climate change, social
exclusion and sustainable development. Good ideas and potential solutions are not the sole
domain of individual agencies or of government.
The current financial framework reinforces the traditional focus on vertical accountability
for expenditure and compliance with legal requirements (chief executive to minister to
parliament) and embeds accountability in the form of a one-to-one relationship between
individuals playing specific roles. This ignores the fact that one-to-many or many-to-many
relationships can also provide a practical and appropriate level of accountability.
Changes should be made to the financial framework to better accommodate the
increasingly joined-up nature of government operations and the increasing role played by
external stakeholders in the design and delivery of public programs and services. While the
current framework establishes some overarching whole-of-government principles, it has a
strong focus on the operations of individual entities.
Legislation should make it clear that the responsibilities of public officials can extend
beyond their individual organisations to include wider government objectives. This
requires acknowledgment that although traditional vertical and hierarchical accountability
models can provide efficiency and clear lines of accountability, they have limitations when it
comes to dealing with many contemporary public policy issues that require action across
several portfolios and sectors. Joined-up systems, which recognise the concepts of dual and
multiple accountabilities, are needed to effectively address these issues.
Explicit legislative acknowledgment of the need to collaborate to achieve wider government
objectives may encourage improved relationships and the breakdown of operational ‘silos’.
Dual and multi-party accountability
Partnering arrangements involve organisations or individuals working together toward
shared objectives. The arrangements are typically among equals with some form of shared
accountability, which is not readily accommodated under the current framework.
Partnering arrangements result in more accountability. Unlike a typical contractual
arrangement, partners are collectively responsible for the partnership’s operations and
each partner can have several accountability obligations. First, the arrangement creates
horizontal obligations among the partners. Second, each partner retains vertical obligations
to its superior or to its governing body. Finally, the partners are collectively accountable to
their joint co-ordinating body – often a committee of senior officials or ministers – for the
success of the arrangement. Therefore, if the roles and responsibilities of each are not clear,
accountability can become diffused.
26
Legislation should better accommodate the concepts of collective responsibility and
multiple accountabilities. While the CAC Act currently acknowledges collective
responsibility of board members, there is no equivalent provision in the FMA Act. The
complex accountabilities that arise in relation to inter-jurisdictional bodies have received
some attention recently, in both the FMA Act and the CAC Act;22 however, this needs to be
taken further.
Joint ventures
Joint activities can be undertaken under a broad spectrum of arrangements. These include a
lead agency being responsible for a deliverable; an inter-departmental committee or
taskforce coming together on a complex policy issue; a program management office being
established to coordinate and implement a policy initiative;23 or a new entity being
established with a new function or responsibility.
Consideration should be given to expanding the menu of options available for structuring
entities to facilitate increased collaboration and collective responsibility. An example is
the ‘specific purpose boards’ that are under consideration in New Zealand as a means of
coordinating and integrating activities across boundaries. They are seen as a low-risk way of
trialling integration, with the option of merger in the future, if necessary.24
Legislation could provide the Finance Minister with the power to authorise the creation of
joint venture arrangements and to establish explicit accountability obligations (including to
other jurisdictions) as part of the authorising process. A more consistent approach to the
establishment of joint ventures would allow a greater focus on the purpose of the joint
activity rather than on authority boundaries between the parties involved.
22
See, for example, section 43A of the FMA Act and section 33A of the CAC Act.
A recent example is the program management office established for the Clean Energy Future package
announced in the 2011–12 Mid-Year Economic and Fiscal Outlook.
24
NZ State Services Commission, Better Public Services Paper 4: Specific Purpose Boards, 2012,
www.ssc.govt.nz/ bps-cab-papers-minutes.
23
27
Appropriations
Redistributing accountability for an appropriation, where it is not related to a transfer of
function, currently requires parliament to pass an Appropriation Act, the timing of which
may not always meet government requirements. This limits funding flexibility for entities
involved in joint activities.
The framework should provide greater flexibility for moving appropriated money
between entities involved in joint activities. These movements could be controlled by the
Finance Minister, or at portfolio level, with portfolio ministers determining allocations.
Either option would require legislative authority from parliament.
Alternatively, appropriations could be made to a joint activity, with notional allocations to
entities. In such a model, parliamentary accountability would need to be maintained
through an appropriate reporting framework.
Grants
Governments provide financial assistance through grants for a variety of activities. The
Commonwealth Grant Guidelines apply to all FMA Act agencies and set out requirements
and better practice principles for entities and officials undertaking grants activities.
Entities can determine their own specific grants administration practices within the policy
framework established by the guidelines. This means that grant applicants and recipients
have to deal with inconsistent practices when they receive grants from different
government programs, which can place unnecessary compliance and cost burdens on them.
The burden on grant applicants should be reduced. Finance is currently working on a lowrisk grant agreement template and agencies have adopted a national standard chart of
accounts to harmonise financial reporting between Australian governments. Feedback
during the CFAR consultations supported a clear policy requirement for the national
standard chart of accounts to be used in grant agreements and guidelines across the
Commonwealth.
Other initiatives include a ‘report once, use often’ reporting framework. The framework is
designed to promote better use of information collected by regulators, such as the
Australian Charities and Not-for-profits Commission, and exempt an entity that has
provided annual audited financial statements to the commission from having to prepare
grant acquittals, unless the granting activity is high risk. Application processes could be
improved through greater recognition of demonstrated performance rather than heavy
reliance on the quality of submissions alone. Acquittal processes should be made more
uniform across the Commonwealth.
Service providers, and especially not-for-profits, have the potential to help overcome the
horizontal disconnect that can occur in the public sector. Currently, not-for-profits spend a
significant amount of their time applying for multiple grants and contracts from numerous
government agencies and then integrating the funding they receive in a way that best
meets the needs of the individual or community being supported. This imposes a significant
administrative burden on the sector, which is compounded by complex and potentially
duplicative reporting requirements. Pooled funding could help to reduce this burden.
28
Partnering
Better collaboration between government and its service providers, including the not-forprofit sector, is needed to more effectively leverage their skills and expertise and design
sustainable programs and services. The public sector culture needs to be one of building
relationships, not just managing contracts.
Program managers should recognise that they can stifle innovation in service delivery if they
narrowly construe public accountability for expenditure of public funds. The Productivity
Commission’s 2010 report on the contribution of the not-for-profit sector identified
contractual regulation, a multiplicity of reporting requirements, micromanagement,
restrictions on other activities and significant compliance burdens as key challenges for the
sector.25
Participants in the CFAR consultations observed that public sector risk aversion is holding
back the potential for effective partnering and is inhibiting innovation. One common
perception is that the current system generally involves government passing risk onto
grantees and service providers through complex grant or service agreements and additional
monitoring and reporting requirements.
Procedural guidelines designed to minimise risk can constrain the ability of service providers
to tailor their service delivery approaches. Prescriptive requirements may result in providers
delivering services in a standardised way, which can limit the value to be gained from
outsourcing service delivery to community-based organisations.
Focusing on collaboration and relationship management with service providers, and
working with them to identify risks and options for mitigation, would minimise the need to
deal with risks through onerous guidelines and ineffective compliance mechanisms. One
way to do this is to engage service providers in discussions on policy and program design,
including participation in taskforces and inter-departmental committees. This could
empower service providers to influence the policy parameters, administrative guidelines
and contractual conditions under which they operate.
Any grants training programs should also include modules that develop skills in managing
relationships and increase the competence of program managers to build the capacity of
service providers so that they perform effectively. Managers should be encouraged and
acknowledged for demonstrating these skills.
25
Productivity Commission, Contribution of the Not-for-Profit Sector, Research Report, Canberra, 2010.
29
8
Capability and culture
The success that a refreshed financial framework will have in improving productivity and
performance depends on individuals making it work and cultural change in the way
government does business. The role of Finance in this process is to assist in changing
attitudes and improving capability by providing training and guidance.
A public service that learns
High quality performance includes learning what works and what does not, in order to
modify and continually improve programs and services. It requires appropriate discretion,
authority and flexibility for managers who must take reasonable risks to innovate. Even
when the risks taken are reasonable, some decisions can prove to be mistakes.
When expectations are not met, a natural tendency is to assign blame. A learning public
service would steer away from blame, and instead accept responsibility, acknowledge
mistakes and assess the cause. It would learn from ‘bad’ decisions to avoid repeating them.
A learning public service would visibly reward learning and would focus on blame only if
incompetence, imprudence or malfeasance were at issue.
Financial management capability
In addition to leadership, financial management culture is influenced by staff capability.
While financial accountability and professionalism are relatively strong across the
Commonwealth, there is still scope for improvement.
Clear guidance from Finance, as the central agency responsible for the financial framework,
is critical to supporting capability. A strong message in the CFAR consultations was that
Finance should enhance the training it provides and improve the quality of its guidance
material. Training should be refocused from simply increasing participants’ knowledge to
influencing their behaviour.
Standardised tools and targeted training should be developed to raise awareness of
financial management obligations across the Commonwealth. A standardised tool to assess
an individual’s knowledge of the financial framework, especially for those exercising
delegations, could support an increased focus on capability. For example, staff at Finance
who have a financial delegation are required to successfully complete an accreditation
module on becoming a delegate and/or as part of an annual process.
Many who provided input to CFAR suggested that enhanced training and ongoing
professional development should also be offered to parliamentarians and their advisers to
assist them in assessing complex financial and legal issues.26 This could include training by
Finance on financial framework and appropriation matters.
26
See also A Murray, ‘Budgets and Finance: Sunlight and the Dark Arts’, paper for the Australian Senate
Occasional Lectures Series, Parliament House, Canberra, 2011, pp. 11–12.
30
Role of chief financial officers
Public sector CFOs can have a strategic influence on material business decisions, including
the development and implementation of significant policies and programs. Their role may
include advising and supporting the leaders of entities in meeting their financial
responsibilities and accountabilities to the government and the parliament.
Participants in the CFAR consultations expressed limited support for specifying professional
qualifications for CFOs in legislation. However, there was support for a greater focus in the
framework on the role and responsibility of CFOs. Many participants suggested that an
approach similar to the one adopted for audit committees, where members are drawn from
a pool of appropriately skilled individuals, may serve as a useful starting point.
31
9
Public money is public money
Much of the complexity in the FMA Act and Regulations relates to the treatment and
handling of public money, which is specifically defined in the FMA Act, and is subject to a
range of complex and technical compliance requirements. By comparison, the CAC Act
makes only passing reference to public money – even though many CAC Act bodies are also
responsible for substantial amounts of money that has been appropriated by parliament
from the Consolidated Revenue Fund.
From the public’s perspective, there is no difference between the money that parliament
provides to FMA Act agencies and money that it provides to CAC Act bodies. The notion of
‘taxpayer funds’ cuts a broad sweep.
The concept of public money should be clarified. Generic rules should apply to all public
expenditure and there should be no perceived advantage or disadvantage in terms of
public accountability arising from the different classifications of entities. Recent
amendments to the Auditor-General Act 1997 (known as ‘follow the dollar’ provisions)
suggest that clarifying the concept of public money is an important consideration for
framework reform. It does not, however, mean that the current range of extensive controls
contained in the FMA Act for managing and handling public money are required.
One key principle relating to the expenditure of public money should be transparency. This
could allow for common and more effective reporting rules to apply for all grants,
procurement, sponsorship or other spending above relevant thresholds.
Money held on own account
Technical issues about the definition and treatment of money are a major focus of the
current framework. One example of differences in handling public money concerns the
concept of ‘money held on own account’.
The CAC Act provides that CAC Act bodies hold money on their own account,27 and
effectively distinguishes money held in this way from public money.28 The net benefit to the
Commonwealth of this arrangement is unclear. On the one hand, there is an opportunity
cost associated with not being able to pool cash holdings across all Commonwealth bodies
for investment purposes (as is currently the case for FMA Act agencies). On the other hand,
there may be advantages associated with more devolved financial and cash management
arrangements for bodies with significant commercial operations or revenue sources other
than the Budget.
27
28
Section 7 of the CAC Act.
For example, see section 7(3) of the CAC Act.
32
Consideration should be given to centralising the holding of public money, but allowing
entities that have a clear business need to hold money on their own account to do so,
taking into account constitutional and operational issues. This does not mean that there
should be a single bank account for the Commonwealth. Rather, it may be appropriate to
extend the management practices that apply to FMA Act agencies (such as overnight
sweeping arrangements) more broadly across government, unless there is a strong business
case not to. Interest earned would be paid to entities in accordance with their enabling
legislation.
Centralised cash investment may improve treasury management in the Australian
Government by reducing overall transaction costs; future work should be undertaken to
investigate the benefits and costs of such an approach.
In addition, very few Commonwealth entities are established for the purpose of investing
money; for most, investment is not integral to their operations.29 Investment functions
should be limited to instances where they are demonstrably necessary.
29
Some exceptions are the Australian Office of Financial Management, the Reserve Bank of Australia, the
Future Fund and the Commonwealth Superannuation Corporation.
33
10 Simplification
Complex systems decrease the ability of individuals to understand the system, reduce
public participation and limit access to decision makers.30
The current financial framework has developed over a long period of time, and through
multiple processes. This has resulted in a framework that is more complex than it needs to
be and contains a number of principles, rules and guidance that were introduced to address
specific issues at specific times. In addition, Commonwealth organisations employ a wide
range of inconsistent practices and processes, further adding to the complexity.
CFAR is an opportunity to simplify and reorganise the financial framework and to provide a
single coherent structure that better supports the underlying principles, rules and guidance.
A well-designed framework, with a structure supported by clear rationales for the content
of legislation, policy guidance and tools, would facilitate a framework that is more intuitive
and easier to understand.
While the FMA Act and the CAC Act are largely principles-based, there has been a steady reimposition of controls, especially in relation to inputs and front-end processes. As a
consequence, the framework has become more focused on compliance and the expenditure
of money and less focused on performance and the achievement of results.
Compliance requirements
Compliance requirements should focus on areas of high risk, without prescribing
procedures that are better addressed through internal controls. Current FMA Act
legislative requirements can duplicate operational processes and information technology
controls, such as around the commitment of public resources – there is, therefore, scope to
resist the need for legislated requirements. As well as monetary costs, excessive compliance
obligations can divert management attention from strategic and operational priorities.
It is also important that compliance requirements are appropriately placed. Shifting the
compliance burden onto others, especially external service providers, may shift
responsibilities away from where they are most effectively assessed and managed.
Participants in the CFAR consultations expressed concern at the lack of attention given to
compliance costs and the quantification of such costs. The 25 procurement-related policies
attached to the Commonwealth Procurement Rules were often cited in this context.
An important observation made about the current framework was the substantial overlap
between management, legal, accounting and audit requirements, which contributes to
complexity. A simpler framework would try to keep these priorities in balance, and to re-use
common core information. A view that was frequently expressed during the CFAR
consultations was that the current emphasis is on legal and accounting requirements rather
than on management and performance requirements.
30
DS Elgin & RA Bushnell, ‘The limits to complexity: are bureaucracies becoming unmanageable?’, The
Futurist, December 1977, pp. 327–49.
34
Several requirements that apply to FMA Act agencies but that have no equivalent in the
CAC Act could be simplified. One example often cited in consultations was FMA regulation
9, which concerns the approval of spending proposals. It is questionable whether the
benefits of this requirement outweigh the compliance cost for entities, especially noting
that section 44 of the FMA Act already provides a basis for making decisions about the use
of resources. Prescriptive requirements such as FMA regulation 9 should be removed from
the framework.
Furthermore, given the advances that have been made in financial management systems
and internal controls since the FMA Act was developed, there would seem little risk in
removing the drawing rights provisions in sections 26 and 27 of the FMA Act, and instead
giving the Finance Minister power under the legislation to stop money being drawn down
against an appropriation.
Reporting requirements
For many entities, compliance with legislative and other reporting obligations represents a
significant investment of time and resources (see Attachment D for an example of the
volume of reporting obligations placed on a typical small entity). Costs are compounded
when similar information is required for several purposes but in different formats. A more
focused approach to reporting should be used to reduce the burden on organisations and
managers.
At present, there is no whole-of-system consideration of the impact of proposed reporting
requirements, or of the continued relevance of existing reporting requirements. Internal red
tape is increasing for all entities. Reporting requirements should be periodically reviewed
to ensure they continue to meet their intended objectives efficiently and effectively. Even
if a requirement is initially appropriate and cost effective, it may not be so in years to come.
Tiered or differential reporting
The current reporting framework adopts a one-size-fits-all approach: entities have the same
reporting requirements regardless of size or risk. A more nuanced approach could reduce
unnecessary compliance requirements and match reporting obligations to the
circumstances in which organisations and programs operate.
While the one-size-fits-all approach helped with the adoption of accrual accounting
practices, advances in information technology and the increased complexity of Australian
Accounting Standards to match more complex business arrangements have led to standard
minimum reporting requirements that are in many cases burdensome and of limited
relevance to many smaller Commonwealth agencies.
Even for large entities, financial statements are inadequate tools for effective
accountability. They merely show that money can be accounted for in a prescribed fashion
and, at an entity level, they say little more.31 They do not tell the reader about the
effectiveness, efficiency or economy of a Commonwealth body.
31
T Harris, ‘Advancing accountability in government’, AGENDA: A Journal of Policy Analysis and Reform,
vol. 16, no. 3, 2009, p. 52.
35
Tiered financial reporting arrangements should be established that are appropriately
calibrated to relevant entities or programs. Such arrangements could continue to meet the
information needs of users and to serve the integrated reporting needs of the
Commonwealth.
A tiered reporting model would reduce red tape and focus scrutiny on the most high-risk
areas and material entities. This approach has already been applied in the private sector,
where a three-tiered reporting framework has been introduced to reduce the regulatory
burden on small companies limited by guarantee, as shown in the following table.
Tier
Type of company
1
Small company limited by
guarantee
2
3
Obligations
Unless directed by a member or ASIC, does not have to:
• prepare a financial report or have it audited
• prepare a directors’ report
• notify members of annual reports.
Company limited by guarantee Must prepare a financial report.
with annual (or consolidated)
Can elect to have its financial report reviewed rather
revenue of less than $1 million than audited.
Must prepare a directors’ report, although with less
detail than required of other companies.
Must give annual reports to any member who elects to
receive them.
Company limited by guarantee Must prepare a financial report.
with annual (or consolidated)
Must have the financial report audited.
revenue of $1 million or more Must prepare a directors’ report, although with less
detail than required of other companies.
Must give annual reports to any member who elects to
receive them.
Source: Australian Securities and Investments Commission, INFO 131: Companies Limited by
Guarantee – Simplified Obligations, viewed 22 October 2012,
www.asic.gov.au/asic/asic.nsf/byheadline/Companies+limited+by+guaranteesimplified+obligations?openDocument.html.
36
Size would not be the only factor to consider when differentiating reporting arrangements.
Other factors include the level of public interest, the risk involved in the entity’s activities
and whether the entity has to meet requirements from other jurisdictions as a result of
joint activities.
Significant consultation will need to occur with stakeholders, including the Auditor-General
and parliament, to ensure that transparency and accountability is not compromised by such
arrangements. It will take time to resolve these matters and to ensure that the aim of
simplifying reporting requirements and reducing the burden in preparing financial
statements for lower tier organisations occurs without losing accountability. There is,
however, a strong interest in examining whether such a reporting scheme can be put in
place, including from state governments.
Integrated reporting
Standards and rules for reporting currently focus on financial reporting. However, public
value is not only concerned with financial performance. For government entities to
contribute to long-term, sustainable value creation they need to direct their operations to
achieving sustainable economic, service, social and environmental results.
The integration of sustainability information with mainstream financial reporting is being
examined by the Financial Reporting Council and other groups. The Australian Accounting
Standards Board and the International Public Sector Accounting Standards Board also have
active projects looking at the role of performance information in reporting. Any standards
should recognise the need to meet public sector requirements.
As part of the Better Government reform agenda, Finance has responsibility for developing
an integrated reporting framework for Commonwealth entities. In the 2011–12 annual
reports cycle, Finance conducted a pilot with selected agencies to provide an evidence base
for the broader applicability of an integrated reporting framework across the public sector.
Annual reports were chosen as a vehicle for the pilot because they already contain
significant amounts of relevant non-financial performance information. The key principles
under which the pilot operated were that integrated reporting should not create additional
reporting burdens; it should be compatible with existing reporting requirements and
methodologies; and it should use a consistent and simple format to allow comparison of
performance across the Australian Public Service, across jurisdictions and internationally.
37
Flexibility and longer term planning
Typically, once budgets are agreed and amounts have been appropriated, entities tend to
focus on managing against their annual budget. This does not necessarily equate to good
financial management. For example, managers may seek to spend their annual budgets in
order to protect their budget share and to avoid having future allocations reduced.
While government decision-making processes contain some mechanisms for dealing with
unspent funding at the end of each year (movement of administered funds, changes to
departmental capital budget profiles, and approval processes for departmental operating
losses arising from spending revenue that was received in previous years), a lack of
flexibility to carry over unspent funds from one year to the next in anticipation of future
expenditure was cited by many participants in the CFAR discussions as an unnecessary limit
on managerial discretion. This lack of flexibility, together with controls associated with
capital and recurrent expenditure, can make it difficult for entities to vary the mix of
departmental resources and hence improve performance.
Consideration should be given to allowing entities to spread cash across years in order to
effectively run their operations, without detracting from overall budget and expenditure
control.32 This could include replacing the current operating loss arrangements with a
mechanism that is based on comprehensive performance metrics.
There may be scope for certain expenditure, such as that related to major investment
projects that run over several years, to be approved on a multi-year basis. Multi-year
expenditure planning and budgeting, which has been implemented in some jurisdictions
and to a degree for some CAC Act bodies, should also be examined.
Any proposals for change would need to take into account the objectives of the
Commonwealth’s annual budget process and the existing requirements for all expenditure
to be effective and efficient. In particular, the potential impact on the government’s fiscal
strategy would need to be considered in developing rules that allowed spending to be
spread across multiple years.
Annual appropriations
Currently, annual appropriations do not lapse without legislative action, resulting in a
significant build-up of unspent appropriation amounts. While these amounts remain legally
available to be used, in practice entities are largely prevented from accessing these
amounts through a range of administrative mechanisms, such as the operating loss rule, to
avoid adverse impacts on the financial position of the government. Whenever they are
accessed, there is substantial administrative complexity associated with their use, such as
matching liabilities to the related appropriations.
32
The running costs system that preceded the existing arrangements was strictly cash limited and allowed
managers to switch up to 2 per cent of their running costs between one financial year and another.
38
To simplify the whole-of-government management of appropriations, the framework
should be amended so annual appropriations lapse automatically after a suitable period
of time. The acceptable period for lapsing will need to be examined.
Moving to cash appropriations, based on the net annual cash requirement of an entity as
shown in its cash flow statement, would further simplify the framework. Under this
approach, appropriations would continue to be explicitly linked to an entity’s accrual
budget and its strategy for managing its balance sheet. This approach would also facilitate a
clear read between appropriations and annual financial statements.
Moving to cash appropriations does not mean that the accrual reporting and budgeting
framework would be dismantled or that its importance would be diminished. It should also
not reduce the motivation for entities to manage all of their resources as opposed to end of
year cash balances, as budgets and financial statements would still be prepared on an
accrual basis.
The benefit of indirectly transferring appropriated money to CAC Act bodies through
portfolio departments is also questionable. Many CAC Act bodies are funded from the
Consolidated Revenue Fund and are ultimately accountable for that money to parliament.
There may be a case for many current CAC Act bodies to be appropriated directly and,
indeed, they were until the 2007–08 Budget.
Adjustments to annual appropriations
Adjustments are commonly made to annual appropriations. This means that the actual
amount available to an FMA Act agency for the year may differ from the amount approved
by parliament for the entity.33 Despite the fact that the majority of CAC Act bodies receive
all, or a large part, of their funding through appropriations, these adjustment provisions do
not apply to them. Instead, the general accounting treatments are considered adequate for
reporting requirements.
Cash appropriations could facilitate the removal of some adjustment provisions from the
FMA Act, such as section 31.
33
For example, see sections 30, 30A and 31 of the FMA Act, which relate to appropriation adjustments such as
repayments to the Commonwealth, recoverable GST and agency receipts.
39
Decoupling outcomes from annual appropriations
The Constitution was designed to allow for a degree of flexibility in administrative
arrangements.34 While it establishes the necessary requirements for an appropriation, the
Constitution does not set down detailed, prescriptive rules for the management and control
of public finances, including the form in which appropriations are presented to parliament.
It is for parliament to determine the degree of specificity with which the purpose of an
appropriation is identified.35
Three broad approaches were canvassed in the CFAR consultations regarding annual
appropriations:
 continue the existing process of appropriating by outcome
 appropriate by entity and key priority, or
 appropriate by program.
The preferred position in this paper is to appropriate by entity and/or key priority.
Fundamentally, the practice of defining broad outcomes to support management flexibility
does not reconcile easily with the need for clear and specific objectives to support
accountability. There is also little evidence to suggest that appropriating to outcomes has
given parliament useful and relevant information about, and more meaningful control over,
the purpose of appropriations.36 Nor is there evidence to suggest that the focus on
performance – which, at a fundamental level, is about achieving results for the
community – has been reinforced by appropriating to outcomes.
In a technical sense, outcomes only apply to a small proportion of government spending.
For example, special appropriations, which comprise some 75 per cent of Commonwealth
expenditure, are not appropriated by outcome. Neither are departmental amounts, which
are technically appropriated at the entity level, although they are notionally attributed to
outcomes. Moreover, 161 of 176 non–department of state entities have only one outcome.
For these agencies, the outcome framework for appropriations provides no additional
information than is conveyed by the purpose of the agency itself.37 Appropriating at the
entity level could simplify these annual appropriations. Suitable processes to monitor
agency spending in the context of the government’s fiscal strategy will continue to be
required.
34
Re Patterson; Ex parte Taylor (2001) 207 CLR 391, at 401–403.
Victoria v Commonwealth & Hayden (1975) 134 CLR 338, at 404, per Jacobs J.
36 Senate Standing Committee on Finance and Public Administration, Transparency and Accountability of
Commonwealth Funding and Expenditure, 2007, paragraph 2.21.
37
A recent Finance estimate for 2011–12 is that only some 6 per cent of the total amount of appropriations
relates to entities with multiple outcomes.
35
40
Appropriations to entities could be complemented by appropriations to key priority areas,
particularly when they cross organisational boundaries. A recent example was the Clean
Energy Future package, which comprised 52 measures across nine portfolios. Attachment E
shows an alternative way in which the package could have been presented in the
Appropriation Bills.
To support entity-based appropriations, Portfolio Budget Statements could be restructured
to more closely align external reporting of planned expenditure and performance, including
on programs, with internal planning and management reporting by entities. This would
make the Portfolio Budget Statements an elaboration of a corporate plan. Such a change
would facilitate better alignment of, and a clear line of sight between, internal and external
financial and performance information and better reflect the operations of organisations
and programs.
An alternative considered in the CFAR process was for administered amounts to be
appropriated to particular programs, rather than to outcomes. This approach could provide
parliament with greater specificity over what it is approving. From a control perspective, it
may provide increased confidence that money will be directed to specific programs as
proposed. However, the approach has the potential to add a layer of complexity, as it would
create legal constraints on the administrative and policy operations of government. This
could be minimised to some extent by ensuring that the program framework is consistent
across the budget, appropriation and annual reporting processes. Such an approach would
not replace the need for Finance to maintain effective oversight and monitoring
arrangements.
The more prescriptive appropriations are made, the more likely it is that the appropriation
framework will create silos of activity. Legalism at the program level could create similar
issues to those currently evident for the specification of outcomes. Moreover, there would
be a perverse incentive for agencies to play with the boundaries and definitions of programs
to increase the size of the appropriation pools.
If amounts are appropriated at too low a level of detail, managers may have less flexibility
to deliver on results and administrative costs could increase. One of the features of
appropriating to outcomes is that it is possible for entities to reallocate funding as required
between programs covered by the same outcome. If appropriations were based on
programs, other legal mechanisms would be required to allow for responsiveness and
flexibility in government while still meeting parliament’s needs.
None of these options is about reducing the focus on the achievement of public policy goals
and targets. Rather, the underlying intention is to better distinguish legal issues in the
financial framework from the policy objectives that governments pursue. The goal is to
develop comprehensive and meaningful outcomes and performance information that are
part of a more holistic, whole-of-government performance framework, regardless of the
appropriation framework.
41
Special appropriations
Special appropriations provide money for a particular purpose, such as the payment of
social security entitlements. Currently, around 75 per cent of government expenditure is
authorised by special appropriations. Once approved by parliament, special appropriations
provide the capacity for expenditure to be funded on a permanent basis, unless they are
time limited, subject to meeting particular criteria. Parliamentary approval is required to
remove or adjust a special appropriation.
The role of the Finance Minister in approving, or creating, special appropriations should
be clarified to better recognise the Minister’s custodianship role in relation to
government finances. Finance could develop criteria for establishing special appropriations,
as is currently the case for special accounts. Such criteria would take into account the
design and nature of the program being funded and the potential to sunset funding to
ensure that the appropriation remains effective and relevant, and does not continue
without review.
Finance could also play a greater role in assisting entities and programs with determining
the most appropriate option for funding activities, that is, the choice between annual
appropriation, special appropriation and the use of special accounts.
Creating and abolishing bodies
To cope effectively with changes to the operating environment within which government
works, new entities need to be created and redundant ones merged or abolished from time
to time.
It can take a long time to establish a new statutory body in the Commonwealth. Depending
on the circumstances surrounding the establishment of an entity, decisions on financial
governance may become skewed towards the quicker option, rather than the better option.
On the other hand, Commonwealth companies can be established quickly. A potential
disadvantage of a company is that it is not always automatically subject to the
accountability and transparency arrangements that apply to government more
broadly – such as requirements of the Freedom of Information Act 1982. While these
arrangements can be extended to Commonwealth companies, that can take time.
It can also be difficult to wind up an entity. Legislation is required to abolish statutory
bodies, which can take time. Companies can be hard to wind up, especially if there are
trailing contingent liabilities. They can linger on for years while being wound up during an
expensive liquidation process, which takes up public resources.
42
The capacity to establish and abolish statutory corporations through a single piece of
legislation should be examined. This could improve the efficiency of government
operations. The proposal is similar in nature to what has occurred under the Primary
Industries and Energy Research and Development Act 1989, where a number of statutory
corporations have been established through regulations.
The proposal is not for a mandatory requirement that would limit ministers and their
departments to using this method to establish new statutory corporations. Rather, the
proposal is to provide an option whereby primary legislation contains standard governance
clauses, leaving details like the name, number of directors, and functions and powers of
each body to be contained in regulations.38 This may be particularly helpful in enabling the
Commonwealth, states and territories to join up through new inter-jurisdictional entities.
Implementation
The proposed reforms encompass a range of legislative, process and cultural changes that
cannot all be achieved at the same time – nor should they be. Implementation of reforms,
taking into account appropriate sequencing and recognition of interdependencies, will take
several years and require input from all parties to ensure success. An indicative timetable
for key features of the reform effort is provided at Attachment F.
38
Legislation could also provide for the transfer of outstanding liabilities of an entity to the Commonwealth.
43
Attachment A: Background to CFAR
On 8 December 2010, the Minister for Finance and Deregulation announced the
Commonwealth Financial Accountability Review (CFAR) as part of the Australian
Government’s Better Government agenda. CFAR was to examine the Commonwealth’s
financial framework from first principles. It would take several years to complete and
involve extensive consultation with stakeholders.
During 2011, thirteen issues papers on various topics related to the financial framework,
including governance, risk, reporting and performance management, were circulated within
the Commonwealth public sector. Finance undertook extensive consultation and sought
feedback from government entities and individuals on the issues raised.
The views gathered through consultation on the issues papers were used to inform the
development of a public discussion paper that was designed to explore key issues in detail
and identify potential options for reform. Government entities were engaged during this
time through an inter-departmental working group and discussions at consultative forums.
An Eminent Readers Group comprising current and retired senior bureaucrats, private
sector executives and academics was also formed to provide expert input into the
development of the discussion paper.
In March 2012, the CFAR discussion paper Is Less More? Towards Better Commonwealth
Performance was released by the Minister for Finance and Deregulation. The paper’s
purpose was to promote consultation and stimulate public discussion.
Extensive consultation on the discussion paper followed. Finance met with stakeholders
from the public, private and not-for-profit sectors, and academe to obtain a breadth of
views on the key issues affecting government operations and to gain insights into reform
opportunities to improve government performance.
A dedicated website, www.cfar.finance.gov.au, was established and a series of open
forums, roundtables and one-to-one meetings were conducted across Australia to reach as
wide an audience as possible.
As a result of the broad engagement strategy, CFAR received around 70 written submissions
from interested parties. Information and feedback provided in the submissions and
obtained through the consultations had a significant influence on the development of the
position paper. The submissions can be viewed at www.cfar.finance.gov.au.
44
Attachment B: Indicative content and structure of a
single Act
This attachment provides an overview of how legislation to replace the Financial
Management and Accountability Act 1997 (the FMA Act) and the Commonwealth
Authorities and Companies Act 1997 (the CAC Act) might be structured and the nature of
the provisions that may be included under the proposals canvassed in this position paper.
The proposals and the related provisions will be the subject of consultations before
recommendations are presented to the Government.
Public Finance and Performance Act: Discussion of content
This paper proposes replacing the FMA Act and the CAC Act with a single Public Finance and
Performance Act. The replacement legislation would seek to draw on the best elements of
the current FMA and CAC Acts; remove unnecessary complexity; and enable a focus on key
issues not currently given explicit recognition in either the FMA Act or CAC Act. It would be
based on an approach that:
 reflects the management of resources, not just money, with the resource management
cycle as the basis for describing key activities and the responsibilities of entities
 provides an increased focus on performance and the management of risk
 better explains the arrangements relating to the life cycle of entities (creation,
management and winding up) and the flexibility for different governance models to be
pursued within a coherent and consistent framework
 recognises key roles and responsibilities of individuals and positions
 recognises that financial legislation should not affect the functions or independence
provided to an organisation through enabling arrangements.
While the structure and content of the legislation would be different from both current
Acts, the philosophy and approach underpinning the new legislation would be modelled on
the CAC Act. This would mean establishing core obligations for managing and using
resources that would apply across all Commonwealth entities while also providing them
with the ability wherever possible to implement the requirements in a way that is
proportionate and appropriate to the size of the entity and the nature of its activities.
45
Guiding principles
The legislation would set out objectives and principles of performance management and
accountability. This would include a focus on stewardship of Commonwealth resources; risk
management; joining up and partnering; integrating financial and non-financial information
to gauge performance; and transparency. It would also recognise that the requirements
imposed on Commonwealth entities in relation to resource management and governance
can and should differ relative to the complexity and risk profile of each entity.
Governance
Moving to a single Act would mean the incorporation of core obligations for resource
management, but not the application of a one-size-fits-all approach to governance.
The diversity of Commonwealth bodies and positions requires that there be sufficient
legislative and structural flexibility to accommodate these differing purposes effectively.
The single Act would accommodate this diversity with potentially a broader menu of
options than is currently available, especially in relation to joint venture arrangements and
inter-jurisdictional bodies.
The legislation would also allow for the recognition of different categories of entity in the
applicability of particular provisions to vary from one category to another. For example,
Government Business Enterprises and intelligence bodies already have modified
arrangements in relation to their operations.
Roles and responsibilities
Current legislation is inconsistent and incomplete in its description of the roles and
responsibilities within the financial framework. The replacement legislation would address
this.
Finance Minister
The legislation would make more explicit the central role of the Finance Minister as
custodian of public resources and issuer of standards and instructions on the financial
framework and its operation.
Accountable authority
The focus of the legislation would be on the management of resources and the performance
of entities; the type of governance structure should be incidental.
46
To cover the variety of governance structures in the Commonwealth, it is proposed to use
the term ‘accountable authority’ to denote the person or board (however described) having
the general direction and control of, and the overall responsibility for, the operations of an
entity. The responsibilities of an accountable authority would be recognised as involving:
 support to the responsible minister in carrying out the minister’s responsibilities
 being the principal adviser to the responsible minister on entity issues
 promoting and pursuing proper resource management within the entity.
This would include recognition that a need may arise, subject to the role and purpose of the
entity, for an entity to contribute to the development and delivery of whole-of-government
programs and services, which may involve working across jurisdictions and sectors, in line
with government priorities and consistent with prescribed requirements.
Chief financial officer
The central role of the chief financial officer in supporting the chief executive or board of
directors would be recognised in relation to such matters as the preparation of estimates;
management of resources and reporting on their use; and establishing and maintaining
internal controls.
Persons engaged in resource management and use
All persons engaged in public sector activities have a role in making decisions about
resources and/or in their management and control. To guide their decision-making, core
obligations for all persons would be recognised in the legislation.
Planning and use of resources
The high-level stages of the resource management cycle would be recognised in the
financial management legislation, with appropriate links to the budget framework.
Appropriations and revenue
Parliament provides spending authority under the Constitution for Commonwealth entities
funded through the budget process, and any resources used by those entities require an
appropriation. The legislation would make this clear, as well as describe the arrangements
covering the Official Public Account and rules covering different types of appropriations.
47
Planning and budgeting
The annual budget process is at the heart of government decision-making on programs and
policies. It is mentioned only indirectly through the requirement to prepare estimates (FMA
regulation 22D and CAC Act section 14). Given the central nature of the budget process for
planning and accountability, the legislation should more explicitly recognise this role. This
would include provisions covering the requirement for entities to prepare estimates, for the
government to present estimates to parliament in the form of the appropriation Bills and
supporting material39 and for government to provide information on the strategies and
priorities to which the resources are to be directed.
Management and use of resources
The legislation would set out some of the key requirements for Commonwealth entities in
the management and use of public resources. By default these provisions would apply to all
users of public resources. These provisions may interact with other areas of the legislation,
such as in relation to the roles and responsibilities of accountable authorities.
The provisions could cover activities such as the collection and handling of money, the
management of property and other assets, investments and borrowing.
The starting point for considering provisions is with recognition of ‘the proper use of
resources’. This is largely reflected in section 44 of the FMA Act (‘efficient, effective,
economical and ethical use that is not inconsistent with the policies of the Commonwealth’)
and would be replicated in the new legislation. The legislation would also take into account
the decision of the High Court in the Williams case40, which requires statutory authorisation
for expenditure that is outside the ordinary services and functions of government.
This would be supported by an approach whereby authority to enter into commitments to
spend money will be based on the idea that if available appropriation exists (or available
authorised resources for an entity not receiving appropriation), and the commitment is for a
purpose consistent with the appropriation or the entity’s focus, the person making the
decision within the entity has authority to enter into a commitment.
39
The Charter of Budget Honesty Act 1998 requires government to prepare and present a Fiscal Strategy
Statement (section 6) and a Budget Economic and Fiscal Outlook Statement (section 10) but no mention is
made of the need to prepare and present Appropriation Bills to parliament.
40
Williams v Commonwealth [2012] HCA 23, 20 June 2012.
48
Performance and accountability
While there are well-established processes and arrangements in relation to financial
reporting, the focus on performance management is less effective. To strengthen both
financial and non-financial performance management, the Finance Minister would be given
the power to issue requirements for Commonwealth entities, including minimum
requirements for planning, performance measurement and evaluation.
The legislation would also cover requirements for government reports and statements and
the reporting and accountability obligations for entities (including varied reporting and
accountability obligations for Government Business Enterprises).
Earned autonomy
The legislation would establish core obligations for entities and provide the ability for the
Finance Minister (or the government on advice of the Finance Minister) to escalate these
requirements depending on the performance and/or risk profile of an entity.
Administrative and other matters
The legislation could be accompanied by a number of schedules covering such matters as
the categories of organisations and application of specific provisions.
The legislation would be supported by regulations and other subsidiary-level instructions. It
is not, however, the intention to move existing volumes of prescription to lower levels.
Draft legislation and indicative structure
The final form and range of provisions in the legislation will be the subject of consultation
ahead of making recommendations to government.
The remainder of this attachment sets out an indicative structure for the legislation.
49
Public Finance and Performance Act 2013: Indicative structure
Part 1: Introduction


Title
Purpose
Part 2: Principles


Objectives
Performance, risk and accountability principles
Part 3: Governance




Categories of entity and applicability of Act provisions
Creation and abolition of entities
o Authority to form companies and subsidiaries
Joint ventures
o Arrangements for inter-jurisdictional and inter-sector agencies
Changes to functions
Part 4: Roles and responsibilities






Finance Minister
Responsible minister
Accountable authorities
o Variation for Commonwealth companies and Government Business Enterprises
Persons engaged in resource management and use
Advisory bodies
Delegations
Part 5: Planning and use of resources
Division 1 – Appropriations and revenue
 Consolidated Revenue Fund and accounts
 Appropriations
 Other sources of revenue
 Supplementation
Division 2 – Planning and budgeting
 Government strategies and priorities
o Statement of government strategies and priorities
o Entity corporate plans and strategies in support of government priorities
 Annual Budget
 Budget update
50
Division 3 – Management and use of resources
 Proper use of resources
 Investment
 Borrowing
 Indemnities and guarantees
Part 6: Performance and accountability
Division 1 – Finance Minster’s instructions
 Ability to make requirements about financial and non-financial performance management
and evaluation
o Core obligations of entities and ability of Finance Minister to escalate and modify
requirements
Division 2 – Reporting
 Government reports and statements
o Reports on progress of government strategies and priorities
o Finance Minister’s reports and statements
 Reporting and accountability obligations for entities
o Financial reporting
o Performance reporting
o Additional reporting and supply of information
o Auditing of financial and performance reports
o Tabling of documents
 Reporting and accountability obligations for Commonwealth companies and
Government Business Enterprises
Part 7: Administrative and other matters




Regulations, instructions and orders
Definitions and terms
Transitional matters
Penalties and sanctions
(Possible) schedules



Categories of organisations and application of specific provisions
Model arrangements for establishment and operation of joint activities
Accountable authorities and roles and responsibilities of directors
51
Attachment C: NSW Audit Office – governance
lighthouse41
As noted in the New South Wales Auditor-General’s report Financial Audit – Volume Two
2011, public sector governance is about shining a light on what agencies and government
are doing and encourages agencies to better meet their obligations to the taxpayer and
public.42 The governance lighthouse has been developed by the NSW Audit Office as a way
to visualise governance in the public sector.
41
The Audit Office of New South Wales recommends that users exercise their own skill and care with respect
to their use of the governance lighthouse and that users carefully evaluate its accuracy, currency,
completeness and relevance.
42
NSW Auditor-General, Financial Audit –Volume Two 2011, May 2011, pp. 12–13.
52
Attachment D: Small agency reporting requirements
The table below provides an indication of the reporting burden faced by an agency. It is not
a comprehensive audit of all reporting requirements. It does not include internal reporting
procedures, such as Chief Executive’s instructions.
Name
Agency ICT strategic plans
Agency information security policy and
plan
Agency protective security policy and
procedures
Agency Public Cloud initiative
Description
Report to government
Report to government
Frequency
Annually
Annually
Various reports to government
Annually
Report to government
One-off
ANAO financial statements audit
ANAO fraud survey
ANAO audit of accounts
Survey on fraud control
arrangements within APS agencies
Proposed procurements for
upcoming financial year
Report to Finance
Whole-of-APS remuneration data
Remuneration details for staff
Annually
Annually
Report to Finance
Enter into the Central Budget
Management System (CBMS) or
Cpack
Quarterly governance
Annually
Annually
Validation of information in
AusTender
Report to government
Annually
Report to government
Annually
Report on packaging recycling
Annually
Taxation reporting obligation
Cash and appropriation receivables
reconciliation
Report to government
Comcare full-time equivalent
actual and estimates
Comcover renewal survey
Survey
Quarterly
Ad hoc
Survey
Strategy to reduce power usage
Compliance report
Annually
Annually
Annually
Annual procurement plan
Application for operating loss
APS Classification Survey
APS Remuneration Survey
Average staffing level
Audit cleared small agency financial
statements and notes
Audit Committee reporting
AusTender validation
Australian Government Data Centre
Demand Survey
Australian Government property data
collection
Australian Packaging Covenant annual
report
Business activity statement
Reconciliation report
Certificate of compliance
Comcare
Comcover
Comcover Risk Management
Benchmarking Survey
Commonwealth Fraud Control Survey
Data Centre Optimisation Target
Fair Work compliance reporting for
contracts
Annually
Annually
Annually
Annualil
Quarterly
Annually
July
Annually
Annually
Annually
53
Name
Digital records management strategy
Disaster Recovery and Data Centre
Survey
Evaluation of recruitment advertising
Description
Report to government
Survey
Frequency
Annually
Annually
Report to government
Fringe benefits tax return
Final audit
Financial statements
Fraud control plan
Government Solutions Register
Statutory report
Report to government
Financial statements
ANAO
Report to government
One-off –
3 parts
Annually
Annually
Annually
Annually
Annually
Grants, vacancies and appointments
ICT Benchmarking/ICT Review Survey
2–3 times/year
Annually
ICT investment intentions 2012–16
Statutory reporting
Detailed report on ICT expenditure
broken into categories
Validation/confirmation of the
above report
Report to government –
contractors
Report to government
ICT workforce plan
Indigenous employment strategy
Strategic plan
Strategic plan
Annually
Annually
Information asset register
Intellectual property policy
Interim audit
Internet Protocol Version 6 (IPv6)
preparedness
Lands Acquisition Act
Legal services reporting – financials
Financial records
Report
Financial statements compliance
Progress towards IPv6 readiness
Annually
Annually
Annually
Quarterly
Real property survey
Report expenditure for legal
services
Compliance letter for legal services
Annually
Annually
Publish expenditure for legal
services (web)
Enter monthly actual information
into CBMS
Report to government
Annually
Enter monthly estimate
information into CBMS
Report to government
Report and publish contracts over
$100,000
Report on procurement
Survey on contracts
Annually
Survey on volume and usage
Report to government –
procurement
Annually
Ad hoc
ICT Benchmarking/ICT Review Survey –
validation
ICT contractor numbers
Legal services reporting – letter of
compliance
Legal services reporting – web
publishing
Monthly actuals
Monthly bank and account
reconciliations
Monthly estimates
Property management plan
Senate order $100,000 reporting
Stationery and office supplies
Telecommunications
Telecommunications
Travel
Annually
Annually
Annually
Annually
Monthly
Monthly
5-yearly
Semi-annually
Ad hoc
Ad hoc
54
Name
Whole-of-government procurement
surveys
National Australian Built Environment
Rating System (NABERS) energy
reporting
National environment protection
measures
Online System for Comprehensive
Activity Reporting (OSCAR)
Mid-Year Economic and Fiscal Outlook
(MYEFO)
MYEFO parameter update
Portfolio Budget Statements
Pre-Expenditure Review Committee
parameter update
Preliminary June year to date
statements
Portfolio Additional Estimates
Statements parameter update
Australian Government property data
collection cost reporting
Campaign advertising funding
Description
Survey
Frequency
Ad hoc
Report on energy efficiency
Annually
Report to government
Annually
Report on energy consumption
Annually
Update annual estimate
information in CBMS
Financial report
Financial statements
Financial reports
Annually
Financial reports
Annually
Report to government
Annually
Report to government
Annually
Report to government
Annually
Risk assessment template for data
centre disaster recovery
Web accessibility
Report to government
Biennially
Compliance report – National
Transition Strategy Phase 1
Compliance survey
Annually
Compliance survey
Quarterly
Report to government
Half-yearly
Report to government
Survey of grants, labour market,
and vacant positions over a
two-year period
Report to government
Report on number of Senior
Executive Service positions
All-APS staff census
Annually
Ad hoc
Whole-of-Government Common
Operating Environment Agency
Whole-of-Government Desktop Panel:
quarterly agency intentions
Senate order for the production of files
Spending on ICT
Various Australian Bureau of Statistics
surveys
Portfolio monitoring reports
Senior Executive Service numbers
State of the Service census
Annually
Annually
Annually
Annually
Monthly
Monthly
Annually
55
Attachment E: Example of a key priority reflected in
annual appropriation Bills
The Clean Energy Future package is a key government priority. It involved 52 measures
across 16 entities in the 2011–12 Mid-Year Economic and Fiscal Outlook. The funding for
these measures was recorded within an outcome in the appropriation Acts. However, an
alternative approach, which could provide greater flexibility and encourage joining up,
would be to appropriate all of the money to the Clean Energy Future package, with notional
allocations to each entity. The table below shows an example of what this might look like.
Departmental
($’000)
Administered
($’000)
Total
($’000)
Australian Bureau of Statistics
2,813
–
2,813
Australian Competition and Consumer
Commission
2,198
–
2,198
Australian Securities and Investments
Commission
400
–
400
Australian Taxation Office
2,200
–
2,200
Department of Agriculture, Fisheries and
Forestry
3,578
27,299
30,877
1,045,304
35,200
1,080,504
–
204,870
204,870
2,811
1,189,028
1,191,839
174
–
174
Department of Human Services
36,854
–
36,854
Department of Industry, Innovation, Science,
Research and Tertiary Education
10,362
173,789
184,151
Department of Resources, Energy and
Tourism
12,384
218,800
231,184
Department of Sustainability, Environment,
Water, Population and Communities
6,184
31,304
37,488
Department of the Treasury
3,861
–
3,861
Department of Veterans’ Affairs
3,533
90,830
94,363
Productivity Commission
3,859
–
3,859
1,136,515
1,971,120
3,107,635
Department of Climate Change and Energy
Efficiency
Department of Education, Employment and
Workplace Relations
Department of Families, Housing, Community
Services and Indigenous Affairs
Department of Health and Ageing
Clean Energy Future – price on carbon
56
Attachment F: Possible timing for implementing CFAR
reforms
CFAR reform
Year
1
Year
2
Year
3+
Single Act
Draft and introduce a single Act to replace the FMA and CAC Acts. The
single Act will:







include a core set of obligations that apply to all Commonwealth
entities
clarify the role of all public officials in relation to the activities of
the portfolio in the legislation
develop consistent terminology for key concepts, such as public
money, and their application
provide a legislated role for the Finance Minister to approve the
creation of a new special appropriation
incorporate risk management in legislation
reduce existing compliance burdens by removing unnecessary
requirements, especially those that duplicate existing internal
systems and controls (such as drawing rights)
decriminalise penalties where feasible
Development of regulations and guidance under the single Act
Consequential amendments to related legislation
Single Act and related supporting legislation come into effect
Earned autonomy
Develop the earned autonomy model with a core set of obligations
across the resource management cycle that entities need to meet.
Obligations may be raised in response to changes in entity risk profile or
performance
Pilot the earned autonomy regime
Implement the regime
Joining up
Design models for joint ventures
Trial joint venture model
Improve guidance and support for joint activities and models for interjurisdictional bodies
Structure the financial framework to allow for pooled funding
arrangements and for appropriated amounts to be more readily
redistributed among entities pursuing shared objectives
Amend legislation to recognise that responsibilities can extend beyond
individual organisations to include wider government objectives
57
CFAR reform
Year
1
Year
2
Year
3+
Performance management and reporting
Improve guidance materials for the construction of key performance
indicators and the development and presentation of targeted and
relevant performance information
Encourage Commonwealth financial and non-financial performance
information to be published on the web with a gradual move away from
paper-based reporting
Examine the establishment of a dedicated performance portal for
government (e.g. performance.gov.au)
Develop and consult on a coherent and integrated performance
management framework for the Commonwealth
Implement Commonwealth performance management framework
Performance benchmarking
Develop indicators that allow performance to be measured and
compared across the public service for similar and/or related activities
and functions
Consult on performance indicators
Implement performance indicators across the Commonwealth
Introduce a more systematic approach to evaluation and better linking
to budget processes
Simplification
Consider ways to simplify grants application and acquittal processes
across the Commonwealth
Consult with Commonwealth entities, service providers and grant
recipients to ensure proposals reduce red tape
Roll out measures to simplify grants application and acquittal processes
Tiered reporting
Develop a tiered (differential) reporting framework, including for
financial statements and non-financial performance information
Consult and trial tiered reporting for Commonwealth entities
Implement tiered reporting
Aligning reporting
Restructure Portfolio Budget Statements to more closely align external
reporting with internal planning and management reporting by entities
Better align standards for preparing appropriation Bills, Portfolio Budget
Statements, annual reports and audited financial statements to enable
comparisons and a clear read between budgeted and actual expenditure
and performance
Integrated reporting
58
CFAR reform
Year
1
Year
2
Year
3+
Develop an integrated reporting framework, incorporating financial,
environmental, strategic and non-financial information
Consult on and implement the integrated reporting framework
Special appropriations
Improve guidance for the establishment of special appropriations
Simplify and streamline appropriation arrangements relating to
treatment of goods and services tax (GST) in FMA Act
Annual appropriations
Appropriate bodies under the CAC Act directly
Reform the machinery of government transfer of appropriation
provision contained in the FMA Act so that transfers take effect from the
start of the next relevant calendar month
Base annual appropriations on the net cash requirements of entities
Implement lapsing annual appropriation arrangements
Simplify, and possibly eliminate, certain technical appropriation
adjustment provisions currently contained in the annual appropriation
Acts and the FMA Act
Discontinue the practice of appropriating to outcomes, but strengthen
performance accountability for achieving results
Risk management framework
Make risk management a core competency in government for managers
and more broadly for all public officials
Develop an overarching risk management framework for the
Commonwealth
Implement Commonwealth risk management framework
Improving the budget process
Investigate policy reforms to budget rules, processes and accounting
treatments, including in relation to operating losses
Implement budget reforms
Culture and change
Provide ongoing support within Finance and to agencies on changes to
the framework and related processes through training materials,
guidance and general assistance
59