Bills Digest No. 95 2004–05
Financial Framework Legislation Amendment Bill
2004
WARNING:
This Digest was prepared for debate. It reflects the legislation as
introduced and does not canvass subsequent amendments. This Digest
does not have any official legal status. Other sources should be
consulted to determine the subsequent official status of the
Bill.
CONTENTS
Passage History
Glossary
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details
Passage History
Financial
Framework Legislation Amendment Bill 2004
Date
Introduced: 1
December 2004
House: House of Representatives
Portfolio: Finance and
Administration
Commencement:
In most cases, when the
Act receives the Royal Assent. Other commencement dates are as per
the commencement table on pages two and three of the
Bill.
Note:
Following the 2004 Federal election, Dr Sharman Stone,
Parliamentary Secretary to the Minister for Finance and
Administration, reintroduced this Bill on 1 December 2004.
Commonwealth Authorities and Companies Act 1997 (CAC
Act). The CAC Act sets out the financial management,
accountability and audit obligations of Commonwealth statutory
authorities and companies in which the Commonwealth has at least a
direct controlling interest. In particular, the Act provides: the
reporting and audit obligations on directors of authorities;
standards of conduct for officers of authorities; and requirements
for ensuring that wholly-owned Commonwealth companies keep
ministers and Parliament informed of their activities. CAC
bodies are divided into Commonwealth authorities and
companies.
Consolidated Financial Statements. Section 55
of the Financial Management and Accountability Act 1997
requires the Finance Minister to prepare annually
consolidated financial statements (CFS) for the Commonwealth.
The statements contain consolidated results for all
Commonwealth-controlled entities, and disaggregated information for
all three sectors: general government, public non-financial
corporations, and public financial corporations. The CFS are
prepared on the basis of Australian Accounting Standards including
Australian Accounting Standard 31.
Consolidated Revenue
Fund (CRF). Section 81 of the Constitution
requires that all revenue raised or money received by the Executive
Government has to form one consolidated revenue fund to be
appropriated for Commonwealth purposes. The CRF is thus the
principal operating fund where the transactions associated with the
general activities of the government are recorded. The CRF is
deemed to be self-executing , that is, money that the Executive
Government raises or receives automatically forms part of the CRF,
without the need to credit a ledger account designated CRF or make
a payment into a bank account so designated.
Financial Management and Accountability Act 1997 (FMA
Act). The main Act governing the financial activities of
agencies including the collection of public money, the maintenance
of accounting records, control and management of public property,
the responsibilities of chief executives of agencies in regard to
the control and management of public money and property, and the
power of the Finance Minister to make regulations and delegate
powers. The Financial Management Legislation Amendment Act
1999 amended the FMA Act to facilitate the adoption of accrual
budgeting by all Commonwealth budget-funded agencies.
Loan Fund. A fund, established under the
Audit Act 1901 (since repealed), into which were credited
all monies raised by loan upon the public credit of the
Commonwealth (other than certain monies raised by way of advances
made by banks in pursuance of agreements under section 20 of the
Audit Act). The Loan Fund no longer exists, having been converted
into a Special Account under the Financial Management
Legislation Amendment Act 1999.
Reserved Money Fund. The Reserved Money Fund
comprised moneys held in trust for persons and authorities other
than the Commonwealth, and other moneys reserved (hence the name)
to meet future expenditure. The Fund no longer exists having been
replaced by Special Accounts.
Special Account. Special Accounts are a
mechanism for recording moneys designated for a particular purpose
and for making payments for that purpose, and are ledgers in the
Consolidated Revenue Fund. Examples are unclaimed moneys under the
control of a trustee, levies collected by the National Registration
Authority for Veterinary Chemicals, industry levies collected and
applied to research in that industry, and charges that the Great
Barrier Reef Marine Park Authority imposes. Agencies include
estimates of Special Accounts flows and balances in their Portfolio
Budget Statements. A Special Account can be established either by
the Finance Minister under section 20 of the Financial
Management and Accountability Act 1997 (FMA Act), or by
enabling legislation as recognised under section 21 of the FMA Act.
As of November 2003, 241 Special Accounts were in existence. A
total of $3.4 billion was reported as held in Special Accounts at
30 June 2003. During 2002 03, $10.33 billion was reported as
credited to, and $10.06 billion in payments (debits) from, Special
Accounts.(1)
Trust Fund. Section 60 of the Audit Act
1901 (since repealed) provided that a separate account, called
the Trust Fund, be kept of all moneys placed to the credit of that
Fund under such separate heads as may be directed by the Finance
Minister. The Minister was empowered to establish trust accounts
and to define the purposes for which they were established. The
Trust Fund no longer exists. The Reserved Money Fund and the
Commercial Activities Fund replaced the Trust Fund. Components of
the Reserved Money Fund and the Commercial Activities Fund were, in
turn, converted into Special Accounts under the Financial
Management Legislation Amendment Act 1999.
The Financial Framework Legislation Amendment Bill 2004 (the
FFLA Bill) has several purposes. They include:
-
principally to amend the wording in a number of Acts to replace
deeming provisions in the Financial
Management and Accountability Act 1997 (FMA Act) and align
their wording with the FMA Act. This includes amending Acts to
reflect the concept that the Consolidated Revenue Fund (CRF) is
self-executing
-
consolidating powers to make decisions about investments, money
raisings and other financial matters in the Finance Minister, by
transferring these powers from the Treasurer
-
repealing redundant Acts, and
-
amending the FMA Act and the Commonwealth
Authorities and Companies Act 1997 (CAC Act)
-
the amendments to the FMA Act (1) expand the information
required when the Finance Minister establishes a Special Account by
determination, (2) allow the Finance Minister to nominate a chief
executive as a member of an advisory committee established to
consider large act of grace payments or waivers, and (3) clarify
the powers of chief executives to delegate powers and give
directions relating to delegated powers, and
-
the amendments to the CAC Act align the offence provisions
applying to the conduct of officers in CAC bodies with the
Criminal Code Act 1995.
The FMA Act is the main Act governing the Commonwealth s
financial and related activities, while the CAC Act sets out the
financial management and other obligations on statutory authorities
and companies in which the Commonwealth has a financial interest. A
feature of the FMA Act is that, under section 20, the Finance
Minister can establish Special Accounts by determinations. Enabling
Acts can also establish Special Accounts.
The FMA and CAC Acts were enacted before the Government
introduced accrual accounting and accrual budgeting in 1999 2000.
As part of the preparations for the adoption of accrual
budgeting, the Financial
Management Legislation Amendment Act 1999 (FMLA Act)
amended the FMA Act. The Joint Committee of Public Accounts
and Audit (JCPAA) considered that a review was warranted of the
effectiveness of the FMA and CAC Acts following the adoption of
accrual budgeting. The JCPAA s report, Report
374, Review of the Financial Management and Accountability Act 1997
and the Commonwealth Authorities and Companies Act 1997,
which was tabled in March 2000, contains the findings of this
review. Among the report s recommendations was one that:
The Department of Finance and Administration and
the Department of Prime Minister and Cabinet should review the
terminology of [the] Commonwealth s financial management
legislation and the public and parliamentary service legislation
with a view to removing inconsistency and increasing consistency
with the terminology used by the private sector.(2)
The Government did not formally respond to the report. However,
in 2002 03, the Department of Finance and Administration developed
a draft Financial Framework Legislation Amendment Bill (draft
Bill). The draft:
-
aligned financial management provisions and practices in other
Acts with the FMA Act, and
-
consolidates ministerial approval powers in relation to money
raising, investments and guarantees by, and for, entities that are
legally separate from the Commonwealth.
In February 2003, the Minister for Finance and Administration,
Senator the Hon. Nick Minchin, released an exposure draft, and
proposed that the JCPAA inquire into it. On 20 August 2003, the
JCPAA tabled its report,
Report 395, Inquiry into the Draft Financial Framework Legislation
Amendment Bill. The Report made five recommendations:
-
Recommendation 1: the proposed
amendments to subsection 20(1) of the FMA Act contained in the
draft Bill should include the following:
-
-
a determination of the Finance Minister establishing a Special
Account should include a reference to amounts that are allowed or
required to be debited from a Special Account and this reference
should be linked to the reference to the purposes of the Special
Account, and
-
a determination of the Finance Minister may specify that amounts
debited from a Special Account may be or must be otherwise than for
the making of real or notional payments
-
Recommendation 2: the draft
Financial Framework Legislation Amendment Bill should include
amendments to the FMA Act and all other relevant Acts to replace
references to Special Account with references to Designated Purpose
Account
-
Recommendation 3: the annual
Appropriation Acts should not authorise the crediting of
appropriated amounts to a Special Account if the Act or the Finance
Minister s determination that establishes the Special Account does
not specifically provide for appropriated amounts to be credited to
the Special Account
-
Recommendation 4: the Financial
Framework Legislation Amendment Bill should include an amendment to
establish the Aboriginal Advancement Account under the section 38
of the Aboriginal Land (Lake
Condah and Framlingham
Forest) Act 1987
-
the Condah Land Account and the Framlingham Forest Account
should be subsumed into the Aboriginal Advancement Account, and
-
Recommendation 5: the Government
should introduce the Financial Framework Legislation Amendment Bill
into Parliament as soon as possible.
On 26 June 2004, the Government tabled its response to the JCPAA
s report on the draft Bill. The Government s response is set out in
Attachment A of the
Explanatory Memorandum.
The Government agreed with the first, fourth and fifth
recommendations. The effect of acceptance of the first
recommendation is to increase the amount of information that the
Finance Minister must provide when proposing to establish a Special
Account by determination, by including references to amounts and
the Account s purpose.
The Government did not agree with the second recommendation.
Consequently, the term Special Account stands.
The Government agreed, in principle, with the third
recommendation. As noted, Special Accounts can be established
either by determinations that the Finance Minister issues under
section 20 of the FMA Act or by an enabling Act. In the latter
case, section 21 of the FMA Act applies. Subsection 21(1) provides
that the CRF is appropriated up to the amount in the Special
Account. The Note that follows subsection 21(1) provides that where
an Act establishes a Special Account, the Act will identify the
amount that is to be credited to the Special Account. The anomaly
that led the JCPAA to make recommendation 3 stems from paragraph
4.64 of its report which states:
The annual Appropriation Acts appear to facilitate
the crediting of appropriated amounts to Special Accounts whereas
some Acts that establish particular Special Accounts do not
specifically provide for appropriated amounts to be credited to
those Accounts.(3)
The Government s proposed solution to this anomaly is to attach
Notes similar to that following subsection 21(1) to sections 20 and
21 of the FMA Act:
the Government considers that the most appropriate
way to clarify the arrangements is for the Office of Parliamentary
Counsel to be instructed to include, in the FFLA Bill, Notes
attached to sections 20 and 21 of the FMA Act to provide
cross-references to the authority provided by the annual
Appropriation Acts for crediting appropriated amounts to Special
Accounts.(4)
The effect of the acceptance of recommendation four is that an
Aboriginal Advancement Fund will be established, and the Condah
Land and Framlingham Forest accounts will be subsumed into the
Fund.
The Explanatory Memorandum discusses issues that the JCPAA
canvassed in its report on the draft Bill but on which the report
did not make recommendations.(5) The following comments
on several of these issues as they relate to accountability and
transparency.
With respect to accountability, an issue is parliamentary
scrutiny of Special Accounts that the Finance Minister establishes.
Section 22 of the FMA Act provides for the disallowance of such
Accounts by either House. The Explanatory Memorandum states that,
to assist scrutiny, the Department of Finance and Administration
will provide more information about such Special
Accounts.(6) This is a welcome move. Many of the
documents that Parliament scrutinises are short on plain English
explanation.
On the issue of transparency, the JCPAA expressed concern
(paragraph 6.23) that the Consolidated Financial Statements no
longer report on the CRF.(7) Reporting is now relegated
to a note in Statement 10 of Budget Paper No. 1. Given that under
the Constitution, all revenues or moneys raised or received by the
Executive Government of the Commonwealth enter the CRF, the lack of
reporting on the CRF is remarkable. The Explanatory Memorandum
notes that the Department of Finance and Administration is
examining ways of providing more information on the CRF including
in the Consolidated Financial Statements.(8)
The FMLA Act, which amended the FMA Act and came into effect on
1 July 1999, contained deeming provisions (outlined in Attachment C
of the Explanatory Memorandum). These provisions deemed that
certain amendments to other Acts also came into effect on 1 July
1999. For example, section 6 of the FMLA Act deemed that references
to the Loan Fund in these other Acts were to be read as references
to the CRF. The main amendments to these other Acts consequent to
the deeming provisions fell into four categories:
-
references to the Loan Fund and to amounts in the Loan Fund,
became amounts in the CRF
-
references to the Reserved Money Fund were abolished, and
references to allocations to the Reserved Money Fund became
references to allocations to the CRF
-
the term Special Accounts replaced components of the Reserved
Money Fund, and
-
paid to the Commonwealth replaced paid into the Consolidated
Revenue Fund .
The deeming provisions had the advantage of not having to change
the wording of these other Acts. In effect, the deeming provisions
were a shorthand way of changing these other Acts but were seen as
an interim measure, pending amendments to these other Acts. The
FFLA Bill changes the wording in these other Acts thereby rendering
the deeming provisions redundant.
The Treasurer has approval powers under several Acts in relation
to borrowing and money raising by entities that are legally
separate from the Commonwealth (for example, the Australian
Broadcasting Corporation); the investment of surplus money by
certain authorities; and the provision of borrowing guarantees.
Most of the approval powers relate to bodies established under the
CAC Act. The FFLA Bill proposes transferring these powers to the
Finance Minister. In evidence to the JCPAA, the Department of
Finance and Administration claimed three advantages of the proposed
transfer. These claims are reproduced in paragraph 613 of the
Explanatory Memorandum. In short, they are more efficient
administration, and the alignment of approval powers with other
finance-related powers the Finance Minister already has.
The Treasurer also has delegation powers in some of the Acts for
which the Treasurer has approval powers. Generally, the delegation
powers are to Treasury officials. The FFLA Bill transfers these
powers to the Finance Minister. The FFLA Bill also provides to the
Finance Minister delegation powers for the Health Insurance
Commission Act and the Sydney Harbour
Federation Trust Act 2001. The JCPAA considered that the
transfer of approval and delegation powers would improve the
financial framework by providing more uniform, and hence more
efficient, approval processes. The JCPAA also proposed replacing
references to Minister for Finance with Finance Minister for
consistency.(9)
Schedule 1 contains most amendments. Most items
relate to the deeming provisions in the FMLA Act and change the
wording in a number of Acts to align them with the FMLA Act. The
main consequence of the wording changes is to make the deeming
provisions redundant. Schedule 1 has two Parts. Part 1 deals with
the removal of references to the Loan Fund, while Part 2 deals with
Special Accounts and references to paid to the Consolidated Revenue
Fund .
The main purpose of Items 1 to
57 in Part 1 is to remove references to the Loan
Fund in other Acts and (usually) substitute other words. For
example, subsection 118(1) of the Higher Education Funding Act
1988 states:
The Consolidated Revenue Fund and the Loan Fund
are, by force of this subsection, appropriated as necessary for the
purposes of this Act other than Chapters 4, 4A and 4B.
The proposed amendment (Item 2) deletes and the
Loan Fund are and substitutes is . In other cases, Consolidated
Revenue Fund replaces references to the Loan Fund.
Part 2 contains three categories of amendment:
-
amendments where
-
references to Account or Special Accounts respectively replace
references to Reserve or components of the Reserved Money Fund ,
and
-
where amount , credited to and debited from respectively replace
money , paid into and paid out of
-
amendments where references to paid to the Commonwealth replace
paid into the Consolidated Revenue Fund , and
-
amendments that are not a direct consequence of the FMLA
Act.
With respect to the first category, the use of Account and
Special Accounts reflect the fact that the Reserved Money Fund no
longer exists. The use of amount , credited to and debited from
reflect the fact that Special Accounts are merely ledgers within
the CRF established for different purposes largely for ease of
administration
The main purpose of the second category is to give effect to the
concept of a self-executing CRF whereby moneys paid to the
Commonwealth automatically form part of the CRF irrespective of
whether the Commonwealth has credited those moneys to an account.
These amendments replace the deeming provisions of section 7 of the
FMLA Act.
The first two categories account for a substantial proportion of
the amendments in Part 2. However, some of these amendments also
give rise to consequential amendments such as those needed to
ensure the continued existence of an Account. An example is the
proposed amendments in Item 98 to the
Bankruptcy Act 1966 to ensure the continued existence of
the Common Investment Fund Equalization Account.
Schedule 1 also contains six types of amendment that are not a
direct consequence of the FMLA Act. The first type relates to the
adoption of the phrase debited from the Account and paid by the
Commonwealth . The FMLA Act deemed that a reference to a payment
from a component of the Reserved Money Fund be read as paying money
from the CRF and debiting the relevant Special Account. The Bill
proposes use of the phrase debited from the Account and paid by the
Commonwealth to replace this deeming provision.
The Bill proposes that this phrase also be used for notional
payments. They are what might be otherwise called book entries. For
example, if an agency owes money to another, instead of the first
agency paying money to the second agency, the same outcome can be
achieved by entries in the books of both agencies. Such payments
are considered to be payments out of the CRF even though no money
has changed hands. Items 141 and
144 respectively insert new
paragraphs 20(4)(4A) and
21(1)(1A) that establish that notional payments
can be made from Special Accounts.
Two of the six types of amendment derive from the
recommendations of the JCPAA report. Item 58
relates to the Aboriginal
Land (Lake Condah and Framlingham Forest) Act 1987 and
gives effect to the JCPAA s fourth recommendation, that is, that an
Aboriginal Advancement Account be established, and that the Condah
Land Account and Framlingham Forest Account be subsumed into the
Aboriginal Advancement Account. The JCPAA concluded, among other
things:
-
the authority that subsection 38(6) in the Aboriginal Land (Lake
Condah and Framlingham Forest) Act supposedly gives to the Minister
responsible for administering the Act to establish a Special
Account, may not be valid because only the Finance Minister (or
enabling legislation) can do that
-
it is doubtful whether an Aboriginal Advancement Account has
been established, and
-
it seems unnecessary to have more that one Special Account (the
Condah Land Account and Framlingham Forest Account have never been
used).
-
Item 58 therefore repeals section 38 and substitutes a
new section 38.
Subsection 38(6) specifically establishes the
Aboriginal Advancement Account.
Item 139 gives effect to the JCPAA s first
recommendation by amending subsection 20(1) of the FMA Act. The
wording in item 139 is consistent with the existing provision and
has three elements: it allows a Special Account to be established,
for amounts to be credited to the Account, and requires the
specification of the purpose of the Account in which debits may be
made. The main difference is the dropping of the words or any from
the existing subsection. The requirement that determinations must
contain all three elements eliminates the discretion that the
Finance Minister has in deciding what to include in
determinations.
Items 1 to
71, 79 to
112, 119 to
134, and 136 to
174 amend Acts to implement:
-
the transfer of approval powers pertaining to certain financial
matters from the Treasurer to the Finance Minister
-
provide delegation powers to the Finance Minister, and
-
change references from the Minister for Finance to the Finance
Minister.
Items 72 to
78 harmonise the CAC Act with the Criminal
Code Act 1995. The main item is item
75, which repeals subsection 27C(4). Section 27
deals with disqualification orders for contraventions of civil
penalty provisions. It provides that a Court may disqualify a
person from managing a corporate body if the person has contravened
a civil penalty provision. Subsection 27C(4) provides that if a
disqualification order is in force against a person, the person
must not be a director of a Commonwealth authority except with the
leave of the Court. Item 75 repeals subsection 27C(4) and provides
that if a person subject to disqualification order is a director of
a Commonwealth authority, that person is subject to a maximum
penalty of imprisonment for one year. However, the penalty does not
apply if the person is a director with the leave of the Court.
Items 113 to
118 amend the FMA Act. Item 116
relates to section 53 which empowers the Chief Executive to
delegate powers. Item 116 repeals subsection 53(2) and substitutes
a new subsection 53(2) which
provides that if a Chief Executive is subject to directions
relating to his powers, the Chief Executive must give corresponding
directions to a second delegate, who must comply with those
directions. Item 118 amends section 59 which deals
with advisory committees for reporting on large waivers, act of
grace payments etc. Subsection 59(1) specifies that the advisory
committee is to consist of the Chief Executive Officer of Customs,
the secretary of the Department of Finance, and the Chief Executive
of the agency responsible for the matter on which the committee has
to report. Item 118 repeals section 59(2) and substitutes
new subsection 59(2) to provide that when no
agency is responsible for the matter, or if the responsible agency
is the Department of Finance and Administration or the Australian
Customs Service, the Finance Minister is to nominate the third
member of the committee.
Item 135 adds to section 206 of the Native
Title Act 1993 a requirement that the Parliamentary Joint
Committee on Native Title and the Aboriginal and Torres Strait
Islander Land Account examine the annual report of the Indigenous
Land Corporation.
Several Items also include a definition of the Finance Minister
as the Minister who administers the Financial Management and
Accountability Act 1997 .
Schedule 3 lists the Acts that are to be repealed on the grounds
that they are redundant.
The JCPAA, in its concluding comments on the exposure Bill,
observed:
7.3 The financial framework of the Commonwealth
includes not only the framework legislation (mainly the FMA and CAC
Acts), but also many enabling Acts that establish separate
entities, Special Accounts, provide special appropriations and
other financial management matters.
7.4 The Committee notes that the deeming
provisions of the FMLA Act were always intended as an interim
measure, pending amendments to the enabling Acts themselves being
passed. Unfortunately there has been an element of confusion about
the status and concept of Special Accounts which the FMLA Act
introduced on 1 July 1999.
7.5 It is therefore becoming increasingly
important that the deeming provisions be replaced with the
amendments proposed in Schedule 1 of the Bill.
The FLAA Bill gives effect to these conclusions.
Endnotes
-
Australian National Audit Office, Agency Management of
Special Accounts, Audit Report No. 24, 2003 04.
-
Joint Committee of Public Accounts and Audit, Report 374.
Review of the Financial Management and Accountability Act 1997 and
the Commonwealth Authorities and Companies Act 1997, 16 March
2000, p. 27.
-
Joint Committee of Public Accounts and Audit, Inquiry into
the Draft Financial Framework Legislation Amendment
Bill, Report 395, 20 August 2003, p. 44.
-
Explanatory Memorandum, p. 121.
-
Explanatory Memorandum, pp. 122 4.
-
Explanatory Memorandum, p. 123.
-
Joint Committee of Public Accounts and Audit, Inquiry into
the Draft Financial Framework Legislation Amendment Bill,
Report 395, paragraph 6.23, p. 67.
-
Explanatory Memorandum, p. 124.
-
Joint Committee of Public Accounts and Audit, Inquiry into
the Draft Financial Framework Legislation Amendment
Bill, Report 395, p. 24.
Richard Webb
2 February 2005
Bills Digest Service
Information and Research Services
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ISSN 1328-8091
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