Part III: Budget process and reporting Resource Management and Budget Training September 2015 1 Contact and acknowledgement information ©Commonwealth of Australia 2015 All material produced by the Department of Finance (Finance) constitutes copyright administered by Finance. Finance reserves the right to set out the terms and conditions for the use of such material. Apart from any use permitted under the Copyright Act 1968, and those explicitly granted herein, all other rights are reserved. Unless otherwise noted, all material in this publication, except the Commonwealth Coat of Arms, and any material protected by a trademark is licensed under the Creative Commons BY SA Attribution Share Alike 4.0 Australia Licence. Details of this licence are available at: http://creativecommons.org/licenses/by-sa/4.0/. Enquiries For enquiries or suggestions about this presentation, please contact training.team@finance.gov.au 2 Budget process and reporting Part I: Resource Management Framework Part II: PGPA Act – fundamentals for officials Part III: Budget process and reporting • Commonwealth Resource Management Framework • Managing performance • Budget context • Risk management • Budget Framework • Australian system of government • Internal controls • Planning and budgeting • Commonwealth governance arrangements • Duties of officials • Monitoring and reporting • Using public resources • Appropriations • Spending relevant money • PGPA Act • Rules and policies • Other relevant legislation 3 Commonwealth Resource Management Framework Constitution PGPA Act Appropriation acts Other legislation Policy Legislative instruments Entity internal controls reporting and evaluation proper use appropriations earned autonomy accountability planning objectives and strategies governance property management transparency audit efficiency PUBLIC RESOURCES spending procurement performance grants management implementing and monitoring risk management cooperation with others commitments budgeting and operational planning 4 Context for the Commonwealth Budget Part I: Resource Management Framework Part II: PGPA Act – fundamentals for officials Part III: Budget process and reporting • Commonwealth Resource Management Framework • Managing performance • Budget context • Risk management • Budget Framework • Australian system of government • Internal controls • Planning and budgeting • Commonwealth governance arrangements • Duties of officials • Monitoring and reporting • Using public resources • Appropriations • Spending relevant money • PGPA Act • Rules and policies • Other relevant legislation 5 Commonwealth receipts and payments General taxation Non-tax revenue Consolidated Revenue Fund 6 General Government Sector (GGS) revenue and expenses ($billion) (BP1) 700 600 500 400 300 Revenue 200 Expenses 100 0 Actuals backward looking (records and explanations) Estimates forward looking (forecasts or projections) 7 Underlying cash balance estimates (%GDP) 8 Major fiscal aggregates Underlying cash balance (operating receipts) minus (operating payments) minus (Future Fund net receipts) minus (investment in non-financial assets) • cash measure • shows whether government has to borrow from financial markets to cover its activities Fiscal balance (revenue) minus (expenses) minus (investment in non-financial assets) • accrual measure • shows whether the government has to borrow from financial markets to cover its activities 9 Major fiscal aggregates Net worth Net debt (assets) minus (liabilities) (interest-bearing debts) minus (associated financial assets) • economic measure of wealth • common measure of the strength of government’s financial position • used in cash accounting 10 Historical Budget surpluses and deficits 11 Budget Framework Part I: Resource Management Framework Part II: PGPA Act – fundamentals for officials Part III: Budget process and reporting Constitution PGPA Act Appropriation Other • Managinglegislation performance • Commonwealth Resource acts Management Framework Entity internal controls • Risk management • Australian system of • Internal controls reporting and planning objectives appropriations proper use evaluation and strategies government accountability earned autonomy • Duties of officials governance property management transparency • Commonwealth governance audit PUBLIC RESOURCES efficiency • Using public resources spending procurement performance grants management arrangements risk management cooperation with others relevant money commitments • Spending budgeting and implementing • Appropriations operational planning and monitoring Legislative instruments Policy • Budget context • Budget Framework • Planning and budgeting • Monitoring and reporting • PGPA Act • Rules and policies • Other relevant legislation 12 Budget legislation Australian Constitution Annual appropriation acts Charter of Budget Honesty Act • aims to improve policy outcomes and public scrutiny • sets planning and reporting requirements – Budget Papers (BP1 – 4) – Mid-Year Economic and Fiscal Outlook (MYEFO) report – Final Budget Outcome (FBO) report – Pre-election Economic and Fiscal Outlook (PEFO) – costings for election policies – intergenerational reports 13 Budget legislation and policy PGPA Act • entities required to prepare budget estimates • performance reporting – financial and non-financial Section 36 Budget Process Operational Rules (BPORs) • Cabinet sets rules and timing for each year’s Budget process Cabinet Handbook • Cabinet Secretariat sets the process for preparing Portfolio Budget Submissions (PBS) 14 Budget documents Budget papers • • • • No. 1 Budget Strategy and Outlook No. 2 Budget Measures No. 3 Federal Financial Relations No. 4 Agency Resourcing Appropriation bills Budget related • • • • • Portfolio Budget Statements Budget Speech Budget Overview Budget at a Glance Ministerial Statements • Appropriation Bill (No.1) • Appropriation Bill (No.2) • Appropriation (Parliamentary Departments) Bill (No.1) 15 Budget tools Central Budget Management System (CBMS) • Budget Estimates and Actuals Management (BEAM) • Budget Policy and Coordination Database (BPCD) • Appropriations and Cash Management (ACM) INPACT integrated new policy and costings tracker • allows Finance to track policies and costings • captures submissions, NPPs, costing agreements and Government decisions 16 Budget roles and responsibilities Prime Minister and Cabinet • agrees to the Budget process • approves new revenue and expenditure decisions Expenditure Review Committee (ERC) • reviews NPP bids • recommends to Budget Cabinet which proposals should be developed for the Budget Parliamentary Budget Office (PBO) • prepares costings and analysis on financial or economic matters, as requested by members of Parliament 17 Budget roles and responsibilities Central departments (PM&C, Treasury, Finance) • • • • manages Budget process (Finance and Treasury) costs expense, non-tax revenue and capital proposals (Finance) costs tax revenue proposals (Treasury) manages Cabinet meetings and approvals for NPPs (PM&C) Commonwealth entities • develop NPPs as part of Portfolio Budget Submissions • update their estimates and actuals for public reporting 18 Budget process and the resource management cycle Pre-Budget year Budget year and post-Budget year • monitoring and adjusting • reporting • audit • fiscal strategy set for the five Budget years Reporting and evaluation Planning objectives and strategies Implementing and monitoring Budgeting and operational planning • allocation of public resources over the coming five years • Parliament and the public informed about these decisions • appropriations put to Parliament for approval 19 Budget process over 3 years Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Pre-Budget Year Government sets BPORs and timing Government undertakes initial strategic budget planning Portfolio minister proposes policy priorities to the PM ERC considers policy priorities Portfolio departments prepare draft PBSs Finance agrees costings contained in draft PBSs PM decides which proposals may be submitted to ERC Portfolio departments lodge final PBSs to Cabinet Secretariat ERC considers NPPs contained in the PBSs CBMS: pre-ERC estimates update Risk and assurance processes CBMS: Budget estimates update Budget Cabinet considers NPPs approved by ERC Budget papers produced Budget night (2nd Tuesday) Budget papers and appropriation bills introduced to Parliament Senate Legislation Committee hearings Appropriation bills considered and usually passed by Parliament by end of June Budget Year Performance monitoring MYEFO papers produced Senate estimates hearings Additional estimates bills passed by Parliament (usually by end of April) Additional Estimates appropriation bills prepared Supplementary additional estimates appropriation bills prepared and introduced to Parliament, if required Post-Budget Year Entities prepare annual reports (audited by ANAO) Final Budget Outcomes (FBO) published by Finance Entities’ annual reports published Consolidated Financial Statements (CFSs) audited by ANAO and published by Finance Finance Minister provides report to Parliament on the use of Advances to the Finance Minister (AFMs) Parliament passes AFM report (usually by end of April) 20 Planning and budgeting Part I: Resource Management Framework Part II: PGPA Act – fundamentals for officials Part III: Budget process and reporting • Commonwealth Resource Planning Management Framework • Managing performance • Budget context • Risk management • Budget Framework • • Internal controls • Planning and budgeting • Duties of officials • Monitoring and reporting objectives and Australian system of strategies government • Commonwealth governance arrangementsBudgeting and • operational Appropriations planning • Using public resources • Spending relevant money • PGPA Act • Rules and policies • Other relevant legislation 21 Setting Budget priorities Process Purpose Planning objectives and strategies Budgeting and operational planning Indicative timing Government agrees the Budget timeline Sets the strategic direction for Budget planning September Ministers submit draft proposals Outline draft portfolio proposals for the coming Budget September/ October Estimates updated at MYEFO Estimates of spending and revenue are updated and policy decisions since the last Budget are reported October/ November Budget priorities are set Expenditure Review Committee reviews Ministers’ draft proposals and sets priorities Portfolio department asked to prepare portfolio budget submissions Late November/ December NPP process begins 22 Where do new policy proposals (NPPs) come from? Planning objectives and strategies Budgeting and operational planning A few things to remember • policy landscape is not a blank canvass • new policy can involve a change to an existing program or activity Policies come from • Government direction, such as election commitments • entities, through improving core business or new ideas • other sources, such as reports produced within or outside Government 23 Planning objectives and strategies Costing NPPs Budgeting and operational planning Clarify policy context Cost departmental Cost administered Prepare & assess proposal Calculate impact on resourcing and Budget balances 24 Clarify the policy context Planning objectives and strategies Budgeting and operational planning Information government needs to make a decision about an NPP: • • • • • • • • • • • what is being proposed and why? does the proposal have authority to come forward? which entities will be affected? is there agreement between entities? how will the proposal be implemented? how much will it cost? is legislation required? what are the risks and how will they be managed? are there any broader impacts? have the right people been consulted? how will performance be measured? 25 Planning objectives and strategies Cost departmental items Budgeting and operational planning Entities & Finance must: understand the policy: expenses (including staffing costs) capital (including ICT) taxation revenue or non-taxation revenue assess: general costing assumptions and information staffing costs and standard on-costs or overheads non-standard operating costs operating costs associated with capital funding protocols cost drivers (price/volume) options apply: efficiency dividend indexation to forward year costs as required 26 Cost administered items Planning objectives and strategies Budgeting and operational planning Entities & Finance must: understand the policy: expenses capital (including ICT and administered assets) revenue & non-taxation revenue assess: assumptions behind the key cost drivers implementation and evaluation assumptions general information and costing data apply: indexation to forward year costs as required 27 Cost capital and ICT Planning objectives and strategies Budgeting and operational planning Entities & Finance must: assess: does proposal require – full business case, gateway clearance and/or Two-Pass process proposal (business case) with lifecycle costing approach as required, seek expert input/assistance to assess proposal (from Finance) operating expenses associated with the proposed capital asset apply: indexation to forward year costs as required 28 Prepare and assess proposal – risk Planning objectives and strategies Budgeting and operational planning Entities must assess the broader impacts that an NPP could have, consider: • nature and intent of the proposal • components that are by nature higher risk (e.g ICT, remote distance), which require more detailed assurance processes • possible impacts on the different sectors, either directly or indirectly: – regulatory impacts (consistent with Government’s red tape reduction agenda) – families, indigenous, regional areas and small businesses 29 Planning objectives and strategies Costing sign off Budgeting and operational planning Clarify policy context Cost departmental Cost administered Prepare & assess proposal Calculate impact on resourcing and Budget balances Costing sign-off Proposal included in portfolio Budget submission 30 Activity: preparing an NPP Planning objectives and strategies Budgeting and operational planning NPP to build and support schools in regional and remote areas (Pages 2-7 of the Activity Book) 31 Planning objectives and strategies Finalising the Budget Process Budgeting and operational planning Purpose Indicative timing Portfolio Budget submissions Departments prepare submissions January Department review of submissions/ pre-ERC estimates update Central departments review submissions ERC review of submissions To recommend which proposals should be included in the Budget (Finance Green Briefs inform this process) March Pre-budget review Entities update estimates to reflect ERC’s recommendations prior to finalising the Budget April Budget Cabinet Special Cabinet meeting to consider and confirm ERC decisions and agree on final Budget measures Late April Budget night Government announces budget decisions and tables Appropriation Bills in Parliament. May Finance and Treasury agree on costings for all NPPs Finance prepares briefs for ERC and pre-ERC estimates update January/ February 32 Prepare Portfolio Budget submissions Planning objectives and strategies Budgeting and operational planning • prepared on a portfolio basis • presented to Cabinet by the relevant Minister • Cabinet Handbook process: – costings agreed between entity and Finance from relevant entities and central departments – exposure drafts of the submission distributed – coordination comments obtained from relevant entities and central departments – final submissions then provided to ERC 33 Expenditure review principles Appropriateness Effectiveness Strategic policy alignment Efficiency Performance assessment Integration Planning objectives and strategies Budgeting and operational planning Evidence 34 Planning objectives and strategies Budget Cabinet Expenditure Review Committee decisions Budgeting and operational planning Budget Cabinet Cabinet decisions 35 Budget delivered to Parliament Planning objectives and strategies Budgeting and operational planning 36 Budget documents presented on Budget night Budget papers Planning objectives and strategies Budgeting and operational planning Budget related • No. 1 Budget Strategy and Outlook • Portfolio Budget Statements • No. 2 Budget Measures • Budget Speech • No. 3 Federal Financial Relations • Budget Overview • No. 4 Agency Resourcing • Budget at a Glance Appropriation bills • Ministerial Statements • Appropriation Bill (No.1) • Appropriation Bill (No.2) • Appropriation (Parliamentary Departments) Bill (No.1) 37 Planning objectives and strategies Parliamentary consideration of Appropriation Bills Jul Aug Jan Feb Portfolio departments prepare draft PBSs Portfolio departments lodge final PBSs to Cabinet Secretariat Finance agrees costings contained in draft PBSs Risk and assurance processes Sep Oct Government sets timing Portfolio minister propose policy priorities to the Prime Minister Government undertakes initial strategic budget planning Prime Minister decides which proposals may be submitted to ERC Mar Apr May Jun CBMS: Budget estimates update Budget papers produced Senate Legislation Committee hearings Budget Night (2nd Tuesday) Budget papers and appropriation bills introduced to Parliament Appropriation bills considered and usually passed by Parliament by end of June ERC considers NPPs contained in the PBSs CBMS: pre-ERC estimates update Budgeting and operational planning Budget Cabinet considers NPPs approved by ERC Nov Dec ERC considers policy priorities 38 Monitoring and reporting Part I: Resource Management Framework • Commonwealth Resource Management Framework Part II: PGPA Act – fundamentals for officials • Managing performance • Budget context • Risk management • Budget Framework Reporting and • Australian system ofevaluation • Internal controls government • Commonwealth governance arrangements Part III: Budget process and reporting • Duties of officials • Planning and budgeting • Monitoring and reporting • Using public resources Implementing • Spending relevant money • Appropriations and monitoring • PGPA Act • Rules and policies • Other relevant legislation 39 Implementing & monitoring Budget year Jul Aug Sep Oct Nov Dec Performance monitoring Monthly financial reports MYEFO papers produced 1 July – budget year begins Jan Additional Estimates appropriation bills prepared Feb Mar Apr May Jun Performance monitoring Monthly financial reports Senate estimates hearings Additional estimates bills introduced to Parliament (usually passed by end of April) If required, supplementary additional estimates appropriation bills prepared and introduced to Parliament 40 Planning objectives and strategies Additional annual appropriation Bills Jul Supplementary additional estimates Additional estimates Budget Aug Sep Oct Nov Dec Budgeting and operational planning Jan Feb Mar Apr May Jun Bills 1 & 2 Bills introduced in May Bills 3 & 4 Bills introduced February to April Bills 5 & 6 Bills introduced in May 41 Discussion: Performance and updating estimates Implementing & monitoring 42 Legislative requirements to report Reporting and evaluation PGPA Act • focuses on better information for Parliament and the public • requires financial and performance reports from entities • clear line of sight from corporate plans and PBS to annual reports • PGPA Financial Reporting Rule Charter of Budget Honesty Act • requires budget reporting Auditor-General Act • Auditor-General and the ANAO audit entity and company financial reports 43 Financial and non-financial reporting Jul Aug Sep • • • • Pre-budget year: Jul Aug Oct Sep Oct Nov Dec Jan Feb Mar Reporting and evaluation Apr annual forecasts Budget-related decisions of Government fiscal outlook for the economy entity corporate plans and Portfolio Budgets Statements Nov Dec Jan Feb Mar Apr May Jun Budget night May Jun Monthly financial statements Budget year: Jul MYEFO / Additional Estimates Aug Post-budget year: Sep Oct Final Budget Outcome Entity annual reports Nov Consolidated Financial Statements • performance monitoring • updated estimates • assessment of performance against plans and fiscal strategy Dec Jan Feb Mar Apr May Jun • report performance • compare actual results to previous estimates 44 End-of-year reporting – Commonwealth entities and companies Reporting and evaluation Annual reports non-corporate Commonwealth entities corporate Commonwealth entities Commonwealth companies • principal transparency and accountability document • focus on performance – financial and nonfinancial • annual performance statements • tabled in Parliament 45 Accounting standards and statistics Reporting and evaluation Reports prepared to Australian Accounting Standards (plus any modifications in the PGPA Financial Reporting Rule) Australian Accounting Standards Focus on financial performance, position and stewardship over resources AASB 1049 Harmonisation Government Finance Statistics Focus on the government’s impact on the economy 46 End-of-year reporting – Whole of Government Commonwealth public sector General government sector (GGS) non-corporate Commonwealth entities corporate Commonwealth entities Commonwealth companies Government business enterprises (GBEs) Public non-financial corporations Reporting and evaluation Consolidated Financial Statements • Commonwealth public sector • disaggregated financial information • prepared by Finance • audited Public financial corporations 47 End-of-year reporting – Whole of Government General government sector (GGS) non-corporate Commonwealth entities corporate Commonwealth entities Commonwealth companies Reporting and evaluation Final Budget Outcome (FBO) • General government sector only • required by the Charter of Budget Honesty Act • prepared by Finance • not audited 48 Timing of post budget year reports Jul Aug Sep Entities prepare annual reports (audited by ANAO) Final Budget Outcomes (FBO) published by Finance Oct Entities’ annual reports published Nov Reporting and evaluation Dec Consolidated Financial Statements (CFSs) audited by ANAO and published by Finance 49 Activity: Reviewing reports Reporting and evaluation (Page 8 of the Activity Book and supplementary materials) 50 Budget process recap Pre-budget year Budget year and post-Budget year • monitoring and adjusting • reporting • audit • fiscal strategy set for the five Budget years Reporting and evaluation Planning objectives and strategies Implementing and monitoring Budgeting and operational planning • allocation of public resources over the coming five years • Parliament and the public informed about these decisions • appropriations put to Parliament for approval 51 Commonwealth Resource Management Framework Constitution PGPA Act Appropriation acts Other legislation Policy Legislative instruments Entity internal controls reporting and evaluation proper use appropriations earned autonomy accountability planning objectives and strategies governance property management transparency audit efficiency PUBLIC RESOURCES spending procurement performance grants management implementing and monitoring risk management cooperation with others commitments budgeting and operational planning 52 Feedback and further information Commonwealth Resource Management Framework • finance.gov.au/resourcemanagement Australian Government Budget • budget.gov.au Public Management Reform Agenda • pmra.finance.gov.au 53