EXPLANATORY STATEMENT

 

Select Legislative Instrument 2009 No. 134

 

Issued by the authority of the Minister for Finance and Deregulation

 

Financial Management and Accountability Act 1997

 

Financial Management and Accountability Amendment Regulations 2009 (No. 4)

 

The Financial Management and Accountability Act 1997 (FMA Act) provides a framework of rules for the proper management of public money and public property by Chief Executives and officials of FMA Act agencies.

Subsection 65(1) of the FMA Act provides that the Governor-General may make regulations prescribing matters required or permitted by the FMA Act to be prescribed, or necessary or convenient to be prescribed, for carrying out or giving effect to the FMA Act.

The Regulations amend the Financial Management and Accountability Regulations 1997 (FMA Regulations) to implement the Government’s reforms to the administration of grants announced by the Minister for Finance and Deregulation on 9 December 2008. The Regulations also make a number of other amendments to the FMA Regulations, including:

·               enhancing requirements relating to the Commonwealth Procurement Guidelines and the Fraud Control Guidelines;

·               relocating and consolidating certain provisions in the FMA Regulations, and relocating certain provisions from the Financial Management and Accountability Orders 2008 to the FMA Regulations; and

·               correcting and updating definitions.

Further details of the amendments are set out in the Attachment.

Commencement

The Regulations commenced on 1 July 2009.

Legislative Instruments Act 2003

The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003. Consistent with section 17 of the Legislative Instruments Act 2003, the Department of Finance and Deregulation has consulted with FMA Act agencies on the development of the Regulations.

Best Practice Regulation Preliminary Assessment

A Best Practice Regulation Preliminary Assessment was undertaken in accordance with the guidance issued by the Office of Best Practice Regulation. This assessment indicated that a regulation impact statement was not required, as the Regulations only affect FMA Act agencies, and do not affect the private sector.

 

ATTACHMENT

 

 

Details on the Financial Management and Accountability Amendment Regulations 2009 (No. 4)

 

Regulation 1 sets out the name of the amending Regulations, as made under section 65 of the Financial Management and Accountability Act 1997 (FMA Act).

 

Regulation 2 states that the Regulations commence on 1 July 2009.

 

Regulation 3 states that Schedule 1 amends the Financial Management and Accountability Regulations 1997 (FMA Regulations).

 

Regulation 4 addresses transitional issues, and preserves the operation of acts done, and instruments made, under the authority of the FMA Regulations, the now-repealed Financial Management and Accountability Orders 2005 and the Financial Management and Accountability Orders 2008 (FMA Orders 2008) that were in place, or had applicable savings-provisions, before the commencement of the amending Regulations.

 

The reason for including a broad transitional and savings provision is to provide sufficient opportunity for agencies to adjust their internal procedures, chief executive’s instructions, delegations and related materials, to relate to the updated framework, as soon as feasible.

 

 

Schedule 1

 

Items [1] and [2] – These items amended previous use of the phrase “goods and services” in FMA Regulation 3 (Definitions), to instead refer to “property or services”, as a clearer description of what can be obtained through procurement. For example, “goods” may not necessarily include interests in real property, such as leases. Also, not all procurement necessarily involves property and services, as some may include either just property or just services. The phrase also aligns with the description of procurement used in the Commonwealth Procurement Guidelines. Item [8] makes a related amendment.

 

Item [3] – This item inserts the definition of “employee”, which moves from subregulation 15(8) (Relevant Agency receipts) into FMA Regulation 3 (Definitions). The effect of this is to permit the definition of “employee” to apply both to FMA Regulation 15 (Relevant Agency receipts) and also to new regulations 31-34 (Transferring leave entitlements) (see item [22] below).

 

Item [4] – This item inserts a definition “grant” (as set out in new regulation 3A) and the definition of “spending proposal”.

 

The definition of “spending proposal” makes clear that a spending proposal is distinct from any contract, agreement or arrangement that may flow from an approved spending proposal. Moreover, approving a spending proposal may not, in fact, ever result in a contract, agreement or arrangement. Also, the definition of spending proposal specifically includes notional payments, and then allows for more efficient and consistent drafting when the phrase is used in FMA Regulations 9 to 14 – in Part 4 of the FMA Regulations (Commitments to spend public money) – and FMA Regulation 28A(3) (Non-application of relevant regulations to operational money).

 

Item [5] – This item inserts a new FMA Regulation 3A to describe, in detail, the meaning of the term “grant”, which is later used in new FMA Regulation 7A (Commonwealth Grant Guidelines) and in the amended FMA Regulation 12 (Approval to be recorded): see items [10] and [14] below.

 

Grants are one type of many financial arrangements used by the Australian Government. Other financial arrangements are used to achieve government outcomes, but it is a matter for agencies to consider the character of those financial arrangements. The agency then needs to comply with the applicable framework (eg, the Commonwealth Procurement Guidelines for procurement and the Commonwealth Grant Guidelines for grants as defined in the FMA Regulations) as well as considering the appropriate form and formality for entering into the arrangement.

Certain arrangements are excluded from the definition of a grant for the purposes of the FMA Regulations. This has occurred for two main reasons.

First, where the arrangement could be treated as a grant or as another arrangement, then if it has been treated, for example, as procurement, the agency would follow the Commonwealth Procurement Guidelines, rather than the Commonwealth Grant Guidelines.

Second, there are some arrangements for financial assistance that could come within the definition of a grant but are not, for policy reasons, to be subject to the Commonwealth Grant Guidelines (and the need to then record the basis of approving a spending proposal for such a grant under FMA Regulation 12 (Recording approval of spending proposal) – item 14 refers). Examples are payments of financial assistance to States under section 96 of the Australian Constitution and payments made under the Federal Financial Relations Act 2009, which are excluded because they are subject to separate administrative arrangements.

The concept of a grant is otherwise broad and is not restricted to a specific form through which financial assistance may be provided to a person outside the Commonwealth. For example, grants can be provided through a variety of arrangements, including deeds, contracts and conditional gifts. The choice of arrangement is a matter of judgement for the relevant agency, taking into account the relevant grant program, grant recipients, risk management and accountability issues.

Item [6] – This item inserts a new FMA Regulation 5A (Business operation of an Agency), dealing with business operations. The substance of this new regulation reflects the FMA Orders 2008, at Order 5.1, which is being moved to the FMA Regulations so that the FMA Orders 2008 can be repealed and therefore simplify the range of subsidiary laws that agencies need to comply with under the FMA Act.

 

Determining an activity as a business operation of an Agency has implications for distinct reporting and auditing of its financial statements. A determination to establish a business operation is not a legislative instrument, but is it required by FMA Regulation 5A(2) to be made public through the website of the Department of Finance and Deregulation.

 

Item [7] – This updates the heading of regulation 7 (Commonwealth Procurement Guidelines) by referring to section 64 of the FMA Act, which provides that the regulations may authorise a Minister to issue guidelines. This brings consistency with all headings in the FMA Regulations, where a cross-reference to a relevant section of the FMA Act is made, where applicable.

 

Item [8] – This item amends the reference to the phrase “property and services” in FMA Regulation 7 (Commonwealth Procurement Guidelines), to instead refer to “property or services”, as explained in detail above regarding the related amendments in items [1] and [2].

 

Item [9] – This item inserts a new subregulation 7(4), requiring officials to act in accordance with the Commonwealth Procurement Guidelines. This also allowed for the removal of former FMA Regulation 8 (Officials to have regard to guidelines), as explained in item [11] below.

 

The requirement to “act in accordance with” the Commonwealth Procurement Guidelines brings consistency with the similar requirements for the Commonwealth Grant Guidelines and the Fraud Control Guidelines (see items [10] and [18] respectively).

 

This drafting is preferable to the previous, less certain, requirement for officials to “have regard to” such guidelines. Instead, the Commonwealth Procurement Guidelines themselves now describe which procurement activities are mandatory and which are matters of sound practice.

 

Item [10] – This item inserts a new FMA Regulation 7A (Commonwealth Grant Guidelines) providing for the making of Commonwealth Grant Guidelines, for matters relating to grants administration. The concept of grants administration encompasses the whole process of granting activity, from planning and design through to the review and evaluation of relevant grants and grant programs.

 

As explained in item [5] above, the concept of a grant is relatively broad, but has been refined through the definition of grant.

 

Consistent with item [9], new subregulation 7A(4) requires officials to act in accordance with the Commonwealth Grant Guidelines.

 

Item [11] – This item removed FMA Regulation 8 (Officials to have regard to guidelines), which required officials to “have regard to” the Commonwealth Procurement Guidelines, and then allowed for a record to be made of an action that is not consistent with the Commonwealth Procurement Guidelines. As explained in item [9], this requirement is superseded by new subregulation 7(4).

 

Item [12] – This item clarifies FMA Regulation 9 (Approval of spending proposals ‑ principles) by using:

·        the definition of spending proposal to replace the longer, undefined phrase “proposal to spend public money”; and

·        the test for “proper use” of Commonwealth resources, provides better alignment between the FMA Regulations and section 44 of the FMA Act.

 

A note explains that the phrase “proper use” refers to the definition in subsection 44(3) of the FMA Act. At the time of making the FMA Regulation, that phrase means “efficient, effective and ethical use that is not inconsistent with the policies of the Commonwealth”:. If subsection 44(3) of the FMA Act were amended, then it would be helpful for this note to be updated, but that meaning of FMA Regulation 9 would still be adjusted, consistent with the FMA Act, even if the note was not contemporaneously updated.

 

The new FMA Regulation does not expressly repeat the requirement in previous FMA Regulation paragraph 9(1)(c) that the approver must be satisfied that if the spending proposal relates to special public money then it must be “consistent with the terms under which the money is held by the Commonwealth”. Stating this requirement is unnecessary, because it is sufficiently clear that not complying with the terms on which special public money is held would not be a proper use of that special public money.

 

The new FMA Regulation also does not expressly repeat the requirement in previous FMA subregulation 9(2) that FMA subregulation (1) “does not apply to a proposal by an intelligence or security agency, or a prescribed law enforcement agency, to spend operational money within the meaning of section 5 of the Act as modified in accordance with Schedule 2”. This concept has, instead, been co-located with other exceptions applying to the operational money of such agencies, as set out in new FMA Regulation 28A (Non-application of relevant regulations to operational money): see item [21].

 

The process of approving a spending proposal is able to be delegated to an official, in accordance with the delegation provisions of the FMA Regulations. This then allows for the function of approving spending proposals to be provided to an official in a delegation that brings the requirements of FMA Regulation 9 to that person’s attention directly.

 

For completeness, the process of approving a spending proposal can also be encompassed as a delegation from a Chief Executive under subsection 44(1) of the FMA Act, as part of the responsibilities of a Chief Executive. However, as was clarified in the note added after section 44(1) of the FMA Act (by the Financial Framework Legislation Amendment Act 2008), one of the key capacities of a Chief Executive is the ability to enter contracts on behalf of the Commonwealth.

 

Accordingly, the framework allows for agencies to adopt the useful distinction of delegating the capacity to enter contracts, agreements and arrangements under section 44 of the FMA Act, while delegating the step required beforehand, of approving spending proposals, under FMA Regulation 9. This approach is also consistent with the delegations made by the Finance Minister of his role in authorising the approval of certain spending proposals under FMA Regulation 10.

 

Items [13] – This item uses the definition “spending proposal” in the place of “a proposal to spend public money”: item [4] refers.

 

Item [14] – This item amends FMA Regulation 12 (Approval to be recorded) to implement a further aspect of the Government’s policy on grants. Where a spending proposal relates to a grant, it requires that the basis of any approval also be recorded as soon as practicable (as well as the terms of the approval, which are already required to be recorded for all approved spending proposals).

 

FMA Regulation 12 does not operate if the terms of an approval, for a non-grant related spending proposal, are recorded in writing at the time that the approval is made. It also does not operate if the terms and basis of an approval are recorded by an approver in writing.

 

Consistent with section 25 of the Acts Interpretation Act 1901 and section 3 of the Archives Act 1983, an approval made in writing can occur other than through a paper document (eg, it can include information stored or recorded by means of a computer).

 

Item [15] – This item amends FMA Regulation 13 (Entering into contracts etc) to use the defined term “spending proposal”. This means that a reference in FMA Regulation 13 to a “notional payment” is no longer required, as the new definition of spending proposal in FMA Regulation 3 includes notional payments: item [4] refers.

 

Moreover, as a result of using the phrase “spending proposal”, FMA Regulation 13 is reduced in length (from 61 words down to 38 words) improving its readability, without derogating from its meaning.

 

FMA Regulation 13 is of particular importance: it states that FMA Regulations 9 and 10 only operate in relation to a spending proposal that, if given effect to, may lead to a contract, agreement or arrangement (or a loan guarantee, as provided for in FMA Regulation 14 (Entering into loan guarantees)). To put this another way, the requirement to comply with FMA Regulations 9 and 10 arises only at some stage before an arrangement (under which public money is, or may become, payable) is entered into, as regulated by FMA Regulation 13 (or 14 for a loan guarantee). Accordingly, FMA Regulations 9 and 10 do not operate outside of the context of FMA Regulations 13 or 14.

 

For completeness, the process of entering a contract, agreement or arrangement is not one delegated by a Chief Executive under FMA Regulation 13, but rather under section 44 of the FMA Act, as explained above in item [12].

 

Item [16] – This item uses the definition “spending proposal” in the place of “a proposal to spend public money”: item [4] refers.

 

Item [17] – This item removes the definition of “employee” from FMA subregulation 15(8), which is relocated to FMA Regulation 3 (Definitions) so that “employee” can apply both to FMA Regulation 15 (Relevant Agency receipts) and also to new FMA Regulations 31-34 (Transferring leave entitlements): item [3] refers.

 

Item [18] – This item inserts a new FMA subregulation 16A(3), requiring officials to act in accordance with the Fraud Control Guidelines: item [9] refers.

 

Item [19] – This item removes FMA Regulation 16B (Officials to have regard to guidelines) which provides that “An official performing duties in relation to the control and reporting of fraud must have regard to the Fraud Control Guidelines.

 

This requirement is instead addressed by new FMA subregulation 16A(3): item 18 refers.

 

Importantly, unlike FMA Regulation 8 for the Commonwealth Procurement Guidelines, the FMA Regulations have not, historically, set out a process for making a “written record” of the reasons for taking “action that is not consistent with the” Fraud Control Guidelines. Accordingly, a positive requirement to act in accordance with the Fraud Control Guidelines is clearer and allows for consistency across the FMA Regulations.

 

Item [20] – This item updates the heading to Part 9 of the FMA Regulations (to say “Modified operation of Act and relevant regulations”), in order to reflect the insertion of new FMA Regulation 28A (Non-application of relevant regulations to operational money): item 21 refers.

 

Item [21] – This item inserts a new FMA Regulation 28A, allowing for non-application of certain regulations to the activities of specified agencies that rely on “operational money”. Specifically, provisions relating to the Commonwealth Procurement Guidelines, the Commonwealth Grant Guidelines, and the Fraud Control Guidelines, are stated not to apply to operational money, as that term is defined in the FMA Act: see FMA subregulations 7(4), 7A(4) and 16A(3) respectively.

 

Also, this item reproduces the substance of former FMA subregulation 9(2), which allowed for spending proposals relating to operational money to be excluded from the requirements of FMA Regulation 9, in relation to the approval of spending proposals. By extension, the requirements in FMA Regulation 10 do not apply to these spending proposals, due to the fact that FMA Regulation 10 only operates as a precursor to considering the approval of a spending proposal under FMA Regulation 9.

 

Item [22] – This item inserts a new part 11 (Transferring leave entitlements — payments when employees move between Agencies etc). These provisions cover the transfer of leave entitlements when employees move between agencies. New FMA Regulations 31, 32, 33 and 34 effectively reproduce provisions from Part 6 of the FMA Orders 2008.

 

Item [23] – This item removes a redundant note, in Schedule 1 of the FMA Regulations, describing when an Order making an Executive Agency (under the Public Service Act 1999) had been published in the Gazette. The note concerns the “Office of Workplace Services”, a former Executive Agency that is also no longer a prescribed Agency under the FMA Act.

 

Items [24]-[25] – These items correct typographical errors in Schedule 2 of the FMA Regulations, in relation to an “intelligence or security agency”, or a “prescribed law enforcement agency”, including how the FMA Act applies to “operational money”. Specifically:

·        in subsection 49(2), the incorrect phrase “the agreement require” is replaced with “the agreement requires” (see item [24], amending Schedule 2, item [7]);

·        in paragraph 57(2)(a), the incorrect phrase “in accordance with the an agreement” is replaced with “in accordance with the agreement” (see item [25], amending Schedule 2, item [11]); and

·        in paragraph 57(2)(b), the incorrect reference to “those Orders” is replaced with “the agreement” (see item [25], inserting Schedule 2, item [11A]).