Bills Digest no. 2 2008–09
Financial Framework Legislation Amendment Bill
2008
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
Purpose
Background
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
Financial Framework Legislation
Amendment Bill 2008
Date
introduced: 26
June 2008
House: House of Representatives
Portfolio: Finance and Deregulation
Commencement: The
formal provisions commence on Royal Assent. Most items in Schedule
1 commence on 1 July 2009, although some items commence on a date
to be fixed by Proclamation or six months and one day after Royal
Assent (whichever occurs first).
Links:
The
relevant links to the Bill, Explanatory Memorandum and second
reading speech can be accessed via BillsNet, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Bill amends
the Financial Management and Accountability Act 1997 (Cth)
(the FMA Act) to clarify the operation of the law, rather than
change it substantively, and allow for more efficient processes
.[1] The Bill also
amends the Albury-Wodonga Development Act 1973 (Cth), the
Public Service Act 1999 (Cth), the Reserve Bank Act
1959 (Cth) and the Defence Home Ownership Assistance
Scheme Act 2008 (Cth) to correct typographical (and similar)
errors and to make provisions in those Acts consistent with the
Commonwealth Authorities and Companies Act 1997 (the CAC
Act).[2]
There are two main Acts which govern the
Commonwealth s financial framework: the FMA Act (which applies to
Government Departments and Agencies) and the CAC Act (which applies
to Commonwealth statutory authorities and Commonwealth companies).
The purpose of the FMA Act is to provide for the proper use and
management of public money, public property and other Commonwealth
resources, and for related purposes .[3] It deals with matters such as the
receipt and custody of public money, and accounting requirements
for public money and appropriations (being a legal authority to
draw money from the Consolidated Revenue Fund).[4] It also contains rules for
borrowing and investing public moneys, and for the control and
management of public property. The CAC Act provides for reporting,
accountability and other rules for Commonwealth authorities and
Commonwealth companies, and for related purposes .[5] Both Acts are designed to ensure
the accountable and transparent administration of the Australian
Government. However, the CAC Act is not a direct subject of the
Bill.
According to the Explanatory Memorandum, the
Bill would have no financial impact .[6] The provision of the Bill which deals
with (but does not amend) the National Water Commission Act
2004 (Cth) and which relates to the Water Smart Special
Account is budget-neutral .[7]
Given the nature of the majority of the
proposed amendments contained in Schedule 1 to the
Bill, it is unnecessary to discuss them all in detail. As mentioned
above, many of the proposed amendments correct typographical errors
or clarify existing provisions. Where a proposed amendment makes a
substantive change to the law, some explanation and analysis of the
cause and/or effect of the proposed change is given below.
Items 1 to 14 of
Schedule 1 to the Bill propose to repeal the
following provisions of the Albury-Wodonga Development Act
1973 (Cth): sections 9A, 16, 27, 30, 32 and 33, subsection
28(2) and paragraph 31A(1)(b). Currently those provisions state
that:
- the CAC Act does not apply to the Albury-Wodonga
Development Corporation (the AWDC)[8] (section 9A)
- members of the AWDC who fail to disclose any interest they have
in a contract made or proposed to be made by the Corporation; land
in the Albury-Wodonga region; or an existing or proposed project of
the Corporation, commit an offence which is punishable, upon
conviction, by a fine not exceeding $500 (section 16)
- the AWDC must maintain at least one account with an approved
bank and pay all moneys, including moneys borrowed by the AWDC,
into that account (section 27)
- the AWDC may only invest moneys on fixed deposit with an
approved bank, in Commonwealth securities or in another manner
approved by the Finance Minister (subsection 28(2))
- the Auditor-General has certain rights and duties in auditing
the financial accounts and asset management records of the AWDC
(section 30)
- the Minister may by writing delegate to a person holding or
performing the duties of a Senior Executive Service office (within
the meaning of the Public Service Act 1922 (Cth) all or
any of the Minister s powers under this Act (other than section 5A)
(paragraph 31A(1)(b))
- the AWDC must prepare and submit an annual report and financial
statements to the Minister for presentation to the Parliament
(section 32), and
- before presenting the financial statements to the Minister, the
AWDC must submit the statements to the Auditor-General, who reviews
them and reports to the Minister (section 33).
The Finance Minister is currently the Minister responsible for
the AWDC.[9] However,
as at 30 June 2007, the responsible Minister was the Parliamentary
Secretary to the Minister for Finance and Administration (then
Senator the Hon Richard Colbeck). The fact that the responsible
Minister may not necessarily be the Finance Minister is reflected
in the use of the distinct terms Minister and Finance Minister in
the Albury-Wodonga Development Act 1973 (Cth).
The main effect of the repeal of these
provisions is that the CAC Act will apply to the AWDC. As stated in
the note which item 3 proposes to insert into the
Albury-Wodonga Development Act 1973 (Cth) after existing
subsection 9(1) (which provision is not otherwise affected by the
Bill), the CAC Act deals with matters relating to Commonwealth
authorities, including reporting and accountability, banking and
investment, and the conduct of officers .[10] Particularly, Part 3 of the CAC Act
deals with reporting and other obligations for Commonwealth
authorities. The AWDC meets the definition of a Commonwealth
authority in paragraph 7(1)(a) of the CAC Act because it holds
money on its own account and is a body corporate that is
incorporated for a public purpose by an Act (namely the
Albury-Wodonga Development Act 1973 (Cth)).
Item 15 of Schedule
1 amends section 6 of the FMA Act by repealing the present
section and substituting a differently worded provision. Currently,
section 6 of the FMA Act provides:
- This Act applies to a notional payment by an Agency (or part of
an Agency) as if it were a real payment by the Commonwealth.
- This Act applies to a notional receipt by an Agency (or part of
an Agency) of such a notional payment as if it were a real receipt
by the Commonwealth.
The proposed revision makes no real improvement
to the existing provision. While revised section 6 is more specific
and technical in its language, this is perhaps unnecessary given
the subject of the provision. In some ways, the existing provision
is clearer in so far as it draws and maintains a distinction
between notional payments and notional receipts. Such distinction
is drawn elsewhere in the FMA Act (such as section 8, which deals
with agreements with banks about receipt, transmission etc of
public money).
Item 16 repeals section 7 of
the FMA Act, which states that Chapter 2 of the Criminal
Code (which sets out the general principles of criminal
responsibility) applies to all offences against the FMA Act, and
deals with maximum penalties. Section 7 is redundant, given
subsection 2.2(2) of the Criminal Code, which provides
that subject to provisions in the Criminal Code dealing with
self-induced intoxication, Chapter 2 of the Code applies on and
after 15 December 2001 to all other offences .
Items 17, 26, 45 and 57 of
Schedule 1 replace references in sections 10, 13,
40 and paragraphs 60(2)(a) and (b) of the FMA Act to the Finance
Minister s Orders with references to regulations (being the
shorthand term for the Financial Management and Accountability
Regulations 1997). Sections 10, 13, 40 and 60 deal respectively
with prompt banking of public money; withdrawal of money from
official accounts without authority; dealing with bonds, debentures
or other securities; and misusing a Commonwealth credit card.
The term Finance Minister s Orders is defined
in section 5 of the FMA Act to mean Orders made under section 63 .
Section 63 currently provides:
- The Finance Minister may make Orders:
(a) on any matter on which this Act requires or
permits Finance Minister s Orders to be made; and
(b) on any matter on which regulations may be made.
- An Order cannot create offences or impose penalties.
- An Order is a disallowable instrument for the purposes of
section 46A of the Acts Interpretation Act 1901.
Section 63 is itself the subject of amendments
proposed in the Bill: see item 58, which seeks to
amend subsection 63(1) (quoted immediately above) by inserting the
phrase by legislative instrument after the words Minister may , and
item 59 which repeals subsection 63(3) (again
quoted immediately above). Following the revision of subsection
63(1), the Legislative Instruments Act 2003 (Cth) (the
Legislative Instruments Act) will apply to Finance Minister s
Orders. Subsection 63(3) has been meaningless since the
commencement of the Legislative Instruments (Transitional
Provisions and Consequential Amendments) Act 2003 (Cth), which
among other things repealed section 46A of the Acts
Interpretation Act 1901 (Cth).[11]
In practical terms, Finance Minister s Orders
(or FMOs):
are produced each year and have the force of law under the
Financial Management and Accountability Act 1997 (FMA Act)
and the Commonwealth Authorities and Companies Act 1997
(CAC Act). The FMOs outline the requirements for the preparation of
Financial Reports of Australian Government Entities. One of the
main purposes of the FMOs and supporting Policies and Guidance is
to ensure consistency of accounting policy choices across
Government Entities where Australian Accounting Standards allow
choices. Consistency is important to ensure comparability of
Financial Reports across Entities and to facilitate the
consolidation of individual Entity Financial Reports when preparing
the Australian Government s Consolidated Financial Statements. The
FMOs aim to enhance the usefulness of information presented in
Financial Reports to Government and major external users.[12]
There are presently two separate sets of
Finance Minister s Orders: both sets are made under subsection
63(1) of the FMA Act. They can deal with any matter on which the
FMA Act requires or permits Finance Minister s Orders to be made ,
and any matter on which regulations may be made . The difficulty
with such an arrangement is that the same subject matter may be the
subject of Finance Minister s Orders and regulations, resulting in
possible discrepancy and confusion for those agencies which are
required to comply with the financial framework. Following the
proposed amendments, matters will either be the subject of
regulations, or (in the case of matters relating to agencies
financial statements and financial reporting) they will be the
subject of Finance Minister s Orders.
Similarly, items 28 and 29
amend subsection 16(1), which provides that the Finance Minister
may issue Special Instructions in writing about special public
money . Item 29 removes the phrase in writing .
Item 28 inserts the phrase by legislative
instrument after the words Minister may . The amendments clarify
the legal status of the form of the Special Instructions,
particularly the fact that the Legislative Instruments Act applies
to any Special Instructions issued under section 16. This outcome
is particularly warranted in light of subsection 16(2) of the FMA
Act which provides: In case of inconsistency, Special Instructions
override this Act, the regulations and the Finance Minister s
Orders . As designated Legislative Instruments , Special
Instructions will become subject to the tabling and disallowance
procedures set out in the Legislative Instruments Act. Further,
subsection 16(3) states that an official or Minister must not
contravene any Special Instruction . Such an offence is punishable
by 2 years imprisonment.
Section 33 of the FMA Act deals generally with
the Finance Minister s power to approve act of grace payments.
Item 35 repeals subsection 33(2), which provides:
If a proposed authorisation would involve, or be likely to involve,
a total amount of more than $100,000, the Finance Minister must
first consider a report of an Advisory Committee set up under
section 59 .
Similarly, section 34 of the FMA Act deals
with the Finance Minister s power to waive debts owing to the
Commonwealth. Item 38 repeals subsection 34(2),
which provides:
If a proposed waiver under paragraph (1)(a) [of
the Commonwealth s right to payment of an amount owing to the
Commonwealth] involves, or is likely to involve, a total amount of
more than $100,000, the Finance Minister must consider a report of
an Advisory Committee set up under section 59 before taking action
on the waiver.
Likewise, item 55 repeals
section 59, which provides:
- An Advisory Committee for the purposes of this Act consists of:
(a) the Chief Executive Officer of Customs;
and
(b) the Secretary to the Department of Finance
and Administration; and
(c) the Chief Executive of the Agency that is
responsible for the matter on which the Committee has to report
- If there is no Agency responsible for the matter, or if the
responsible Agency is the Department of Finance and Administration
or the Australian Customs Service, then the third member of the
Committee is to be a Chief Executive nominated by the Finance
Minister.
- A member of an Advisory Committee may appoint a deputy to act
in his or her place.
- An Advisory Committee may prepare its report without having a
meeting.
In place of these provisions, item
61 inserts proposed subparagraphs 65(2)(a)(ia) and
(ib) into section 65, which is the regulation-making power
in the FMA Act. Following the making of these proposed amendments,
the regulations may make provision for the Finance Minister to
consider a report from a specified person before authorising an act
of grace payment or waiving an amount owed to the Commonwealth
where the amount to be authorised or waived is more than a
specified amount . The amendments also provide that the regulations
can make provision for the Finance Minister to authorise a payment
of an amount if at the time of a person s death, the Commonwealth
owed that amount to the person. The regulations may also provide
that in such a case, production of probate of the will (or letters
of administration) is not required. This latter issue is currently
contained in section 35 of the FMA Act, but item
39 of the Bill proposes to repeal that section. The
amendments do not actually refer to the amount of $100,000, but
they do refer to a total amount that is more than a specified
amount . Presumably the specified amount will be included in the
regulations; the amount can then be readily increased or decreased,
subject of course to the disallowance procedures contained in the
Legislative Instruments Act.
Items 40 44 amend section 39,
which empowers the Finance Minister and the Treasurer to invest
public money in any authorised investment . Item
40 (which amends subsections 39(1) and (2)) makes clear
that the Finance Minister and the Treasurer may make such
investments on behalf of the Commonwealth . Item
44, which repeals subsections 39(7) and (8), is
consequential upon the amendment in item 40. The
amendments are also necessary because those subsections refer to
obsolete legislation. Subsection 39(7) refers to the Audit Act
1901 (Cth) and subsection 39(8) refers to the Loan
Consolidation and Investment Reserve Act 1955 (Cth). The
former Act was repealed by the Audit (Transitional and
Miscellaneous) Amendment Act 1997 (Cth) and the latter Act by
the Financial Management Legislation Amendment Act 1999
(Cth).
Items 47, 48 and 49 amend
section 44, which deals with promoting efficient, effective and
ethical use of Commonwealth resources. It currently provides:
- A Chief Executive must manage the affairs of the Agency in a
way that promotes proper use of the Commonwealth resources for
which the Chief Executive is responsible.
- If compliance with the requirements of the regulations, Finance
Minister s Orders, Special Instructions or any other law would
hinder or prevent the proper use of those resources, the Chief
Executive must manage so as to promote proper use of those
resources to the greatest extent practicable while complying with
those requirements.
- In this section:
proper use means efficient, effective and
ethical use.
In summary, section 44 states that the Chief
Executive of a Government Agency that is subject to the FMA Act
must manage the affairs of the Agency in a way that promotes
efficient, effective and ethical use of the Commonwealth resources
for which the Chief Executive is responsible. Item
47 adds a note at the end of subsection 44(1) to make
clear that the Chief Executive has the power to enter into
contracts, on behalf of the Commonwealth, in relation to the
affairs of the Agency . It is not clear why this note is necessary,
given the long-standing decision of the High Court of Australia in
New South Wales v Bardolph (1934) 52 CLR 455, which was
quoted with approval by Glass JA in Coogee Esplanade Surf Motel
Pty Ltd v Commonwealth of Australia (1976) 50 ALR 363 at
383:
The authority of a particular officer to bind
the Crown by a contract made in the ordinary course of government
business may be inferred from the nature of his office and requires
no statutory foundation.
The decision in Coogee Esplanade is a
decision of the New South Wales Court of Appeal, not the High Court
of Australia, and thereby may be of persuasive but not binding
authority on future courts deciding similar issues. Importantly,
there appears to be a subtlety in the Bardolph decision
which is missing from the statement of law in Coogee
Esplanade, and that is as follows:
In each case, the character of the transaction,
and also constitutional practice, must be considered. The question
of authority, in the case of contracts providing for the carrying
on of the ordinary activities or functions of government, presents,
as a rule, but little difficulty; other contracts, however, must be
considered each in relation to its own facts.[13]
In other words, each instance of government
contracting must be decided upon its own facts.
Item 48 substitutes a revised
requirement in subsection 44(2) that in managing the affairs of the
Agency in a way that promotes the proper use of Commonwealth
resources, the Chief Executive must comply with the FMA Act, the
regulations, Finance Minister s Orders, Special Instructions and
any other law. The revised provision is substantially the same as
the present provision but is much clearer. Finally, item
49 amends the definition of the phrase proper use in
subsection 44(3) to state that the efficient, effective and ethical
use of Commonwealth resources must not be inconsistent with the
policies of the Commonwealth . Some difficulties may arise where a
policy simply offers guidance, as opposed to another
policy (such as the Commonwealth Procurement Guidelines) which is
mandatory. In such a case, Chief Executives must use their
discretion as to the applicability of particular guidelines or
non-binding policies.
Item 50 inserts
proposed new section 44A which provides that a
Chief Executive of a FMA Agency must provide the Minister
responsible for the Agency and the Finance Minister with documents
and information about the operations and financial affairs as
required by the Minister concerned and within such time limits set
by the Minister concerned. Such a provision would seem to aid
public accountability of agencies by obliging Chief Executives to
provide vital information in a timely manner.
Item 51 repeals section 46 of
the FMA Act and replaces it with a revised version. Currently,
section 46 provides: A Chief Executive must establish and maintain
an audit committee for the Agency, with the functions and
responsibilities required by the Finance Minister s Orders . The
revised provision is more detailed, referring to the functions of
the audit committee that include (a) helping the Agency comply with
obligations under the FMA Act, the regulations and Finance Minister
s Orders; and (b) providing a forum for communication between the
Chief Executive, senior managers of the Agency, and internal and
external auditors. The more detailed provision is almost identical
to section 32 of the CAC Act, which provides that the directors of
a CAC Agency must establish and maintain an audit committee with
certain functions.
Items 18, 24, 27, 30, 31, 46 and
56 replace the reference to Maximum penalty in various
provisions in the FMA Act with the term Penalty . This change
accords with legislative drafting practice and principles of
criminal law.
Items 52 and 53 amend section
50, which deals with the provision of additional financial
information by a Chief Executive to the Finance Minister. The
requirements in subsection 50(2) are now covered by
proposed section 44A (see item 50
above) in a more detailed form. Thus subsection 50(2) is no longer
required.
Item 54 repeals existing
section 51 and substitutes a new form of words in its place.
Section 51 deals with reporting requirements on change of Agency
functions where an Agency ceases to exist, or a function of an
Agency is transferred to another Agency (or Agencies). The revised
provision is not particularly different to the existing provision,
but includes the terms the old Agency and the transferring Agency
to make clear which Agency is being mentioned.
Item 60 amends section 64,
which deals with a Minister s power to make guidelines on any
matter on which regulations may be made under the FMA Act.
Item 60 inserts proposed subsection
64(3) to state that a guideline is a legislative
instrument . As noted above in relation to Finance Minister s
Orders, the effect of this amendment will be that the Legislative
Instruments Act (including the disallowance procedures) will apply
to any guidelines made by a Minister under the FMA Act.
Item 62 amends the note to
section 73 of the Public Service Act 1999 (Cth) by
deleting the words or otherwise relates to the Agency s outcomes .
Section 73 deals with the power of the Public Service Minister to
authorise the making of payments in special circumstances. The note
(which relates to the section as a whole, and not just subsection
73(5) as appears in the Bill) currently reads as follows:
Payments under this section must be made from
money appropriated by the Parliament. Generally, a payment can be
debited against an Agency s annual appropriation, providing that it
relates to some matter that has arisen in the course of its
administration or otherwise relates to the Agency s outcomes.
The amendment is the result of the decision of
the High Court of Australia in Combet v Commonwealth of
Australia (2005) 224 CLR 494, where the majority of the Court
(McHugh and Kirby JJ dissenting) held that it is not necessary to
link departmental expenditure to particular Agency
outcomes.[14]
The Bill contains four amendments to the
Reserve Bank Act 1959 (Cth). Item 63
corrects a reference in subsection 7A(3) to section 27 of the CAC
Act. The correct reference is to section 27P of the CAC Act, thus
reflecting numerous amendments to the CAC Act since section 7A was
inserted into the Reserve Bank Act 1959 by the
Financial Sector Reform (Amendments And Transitional
Provisions) Act 1998 (Cth). Subsection 7A(3) provides:
However, sections 21 to 27 of the
Commonwealth Authorities and Companies Act 1997, and
Schedule 2 to that Act, apply to the members of the Payments System
Board as though they were directors of the Bank.
Items 64 66 make minor
amendments to paragraphs 25L(4)(c) and (d) of the Reserve Bank
Act 1959 (Cth) to correct drafting omissions and to correct
references to obsolete legislative provisions.
Most of Part 2 of
Schedule 1 to the Bill contains saving,
application and transitional provisions in relation to amendments
proposed in Part 1. It is unnecessary to comment
further on these provisions, except to say that none has
retrospective operation.
Item 76 of Schedule
1 is an unusual provision, particularly given its
inclusion in Part 2. Unlike the other provisions in Part
2, item 76 is not a saving,
application or transition provision.
According to the Explanatory Memorandum for
the Bill, item 76:
reflects the change in administrative
arrangements for the Water Smart Australia program, which from 1
July 2008 is administered by the Department of the Environment,
Water, Heritage and the Arts. That Department will be funded for
the Water Smart Australia program by a means other than the
Australian Water Fund Account (such as general Appropriation
Acts).[15]
Item 76 deals with the
Australian Water Fund Account, which is a Special Account
established under the National Water Commission Act 2004
(Cth).[16] At the
commencement of item 76, the Chief Executive
Officer of the National Water Commission ceases to have the
function of administering financial assistance, awarded by the
Minister administering [the National Water Commission Act
2004 (Cth)] to particular projects relating to Australia s
water resources, from the Australian Water Fund Account to the
extent that assistance was provided from that Account before the
commencement of this item and related to the Water Smart Australia
Program . In other words, this sub-item says that the Chief
Executive will cease on the commencement of item
76 to administer financial assistance from the Australian
Water Fund Account which related to the Water Smart Australia
Program.
Specifically,
sub-item 76(1) states that the Australian
Water Fund Account is to be debited by $320,000,000 if the balance
of the account is at least that amount on commencement of
item 76. However, where the balance of the account
is less than $320,000,000 then the whole of the balance is to be
debited. Presumably, according to general accounting principles, a
credit must appear in another account, but the item does not state
where the debited moneys go. They may be returned to the
Consolidated Revenue Fund, but equally validly, they could be
retained by the National Water Commission or perhaps credited to
another Agency or Department(s). For example, it is not clear why
the moneys cannot be dealt with by administrative arrangements
between the National Water Commission and the Department of the
Environment, Water, Heritage and the Arts, as the former and
current administrators of the Water Smart Australia program
respectively. It is also not clear what happens to any money in
excess of $320,000,000 should the balance of the Australian Water
Fund Account be greater than that amount at the commencement of
item 76. For example, is it simply retained by the
National Water Commission for purposes other than the Water Smart
Australia program?
Item 1 of Schedule
2 amends section 83 of the Defence Home Ownership
Assistance Scheme Act 2008 (Cth), which deals with receipt and
custody of public money by contractor. The amendment is
consequential upon the amendments to section 12 of the FMA Act
contained in Schedule 1 to the Bill.
The vast majority of the amendments contained
in the Bill are uncontroversial. They largely clarify and/or
simplify expression, correct minor typographical errors, remove
references to obsolete legislation, and bring provisions in line
with the CAC Act. Many of the amendments make the legislation in
question more readable, with obvious benefits for efficient and
transparent administration because administrators should have a
clearer understanding of their functions and duties.
The only possibly problematic provision seems
to be item 76, which not only appears in an odd
location at the end of saving and transitional provisions in
Part 2 of Schedule 1, but seems
to contain inadequate detail about the fate of a large sum of money
that is to be debited from the Australian Water Fund Account but
not apparently credited to another account or used for any
identifiable purpose.
Morag Donaldson
19 August 2008
Bills Digest Service
Parliamentary Library
© Commonwealth of Australia
This work is copyright. Except to the extent of uses permitted
by the Copyright Act 1968, no person may reproduce or transmit any
part of this work by any process without the prior written consent
of the Parliamentary Librarian. This requirement does not apply to
members of the Parliament of Australia acting in the course of
their official duties.
This work has been prepared to support the work of the Australian
Parliament using information available at the time of production.
The views expressed do not reflect an official position of the
Parliamentary Library, nor do they constitute professional legal
opinion.
Feedback is welcome and may be provided to: web.library@aph.gov.au. Any
concerns or complaints should be directed to the Parliamentary
Librarian. Parliamentary Library staff are available to discuss the
contents of publications with Senators and Members and their staff.
To access this service, clients may contact the author or the
Library’s Central Entry Point for referral.
Back to top