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
Main Provisions
Concluding Comments
Endnotes
Contact Officer and Copyright Details
Financial
Management Legislation Amendment Bill 1999
Date Introduced: 10 February 1999
House: House of Representatives
Portfolio: Finance and Administration
Commencement: On 1 July 1999 but only if
Royal Assent is obtained by 1 May 1999. If Royal Assent is not
granted by 1 May 1999, the legislation will come into effect on a
day to be fixed by Proclamation. For operational reasons, and in
limited circumstances, the Act may commence later than 6 months
after Assent.
Purpose
The Bill provides for a number of largely
uncontentious but significant amendments to the Commonwealth's
accounting machinery.
Amendments to the Financial Amendment and
Accountability Act 1997 (FMA Act) are to facilitate the
adoption of accrual accounting by all Commonwealth budget-funded
Departments and agencies.(1)
Key changes are to the structure and operation
of the Consolidated Revenue Fund (CRF).
Background
Commonwealth Accounting
Framework
The accounting framework of the Commonwealth is
broadly defined by the Australian Constitution.
Section 51 provides that the Parliament has
power to make laws for, amongst other things, taxation and
borrowing money on public credit. Parliament also has the exclusive
right to impose customs and excise duties [section 90].
Money collected under the authority of
Parliament by the Executive Government must form part of one CRF
and may be appropriated (drawn on) for the purposes of the
Commonwealth.
No money can, however, be drawn from the
Commonwealth Treasury except under an appropriation made by law.
Such laws may take the form of general Appropriations Bills (the
legislation commonly associated with the Commonwealth Budget) or
standing appropriations contained in individual enabling laws or
specific enactments.
Public money can only be appropriated on the
initiative of the Executive Government [section 56] as a message
from the Governor-General to the House of Representatives
recommending an appropriation is required.
Since federation, the key features of day to day
Commonwealth financial administration have been sections 81 and 83
of the Constitution and the Audit Act 1901, which, as has
been noted frequently, was the fourth piece of legislation enacted
by the Commonwealth.
The Audit Act was repealed in 1997 and replaced
by three substantive pieces of legislation:
-
- The Auditor-General Act 1997 which regulates the
powers and responsibilities of the Auditor-General and the
Australian National Audit Office (ANAO).
-
- The Commonwealth Companies and Companies Act 1997 (CAC
Act) regulating the financial, ethical and reporting requirements
of corporate public authorities whose enabling legislation gives
them 'ownership' of their operating funds and assets. It also
extends to companies where the Commonwealth has a direct
controlling interest and makes special provision for 100 percent
Commonwealth owned companies. Entities covered by the CAC Act
include: the Australian Postal Corporation, Australian Broadcasting
Authority, National Gallery of Australia, National Library of
Australia, Special Broadcasting Service Corporation and the Civil
Aviation Safety Authority (CASA).
-
- The Financial Management and Accountability Act 1997
establishes the regulatory framework for Commonwealth budget
dependant instrumentalities which are agents of the Commonwealth.
These bodies do not 'own' their funds and operate squarely within
the framework contemplated by sections 81 and 83 of the Australian
Constitution. Budget-dependent agencies include: the Departments of
State, the Parliamentary Departments as well as many Statutory
Authorities and Commonwealth bodies which manage public money or
property on behalf of the Commonwealth.
Accrual Accounting
The Explanatory Memorandum contains a
succinctly expressed and useful guide to a number of key terms used
in the Bill.
'Accrual accounting' is described as a basis of
accounting whereby the financial effects of transactions and events
are recognised when they occur (and not as cash is received or
paid) and included in financial statements for the reporting
periods to which they relate.(2)
Thus the fundamental difference between what is
usually called 'cash accounting' and the accrual method is that
cash accounts only record a financial flow at the time that cash is
exchanged.
Accrual accounting also shows cash transactions
but records a financial flow at the time that economic value is
created, transformed, exchanged, transferred or extinguished,
whether or not cash is exchanged at the time or sooner or
later.
The accrual system thereby seeks to match
economic costs incurred during a financial reporting period against
the economic benefit accrued in that same period.
An accrual system will generally also seek to
measure the full costs of a particular transaction, task or process
and do so by using benchmarks or standards. Thus, the cost of
preparing this Bills Digest will not only include the cash costs of
providing for the author's salary, paper and printing etc but will
also include a range of other items including overheads such as
notional or imputed rent on premises occupied by the Parliamentary
Library.
Another major feature of accrual accounting is
that current and capital transactions are separated as part of the
accrual framework.(3)
More detailed descriptions of the differences
between the cash and accrual systems are presented in: Accrual
Budgeting Project, Fact Sheet: The Central system: from cash to
accruals, Department of Finance and Administration (1998) and
National Commission of Audit Report (1996). A comparative
table from the latter document is extracted here and appears as the
Appendix to this Digest.
Accrual Accounting and the
Commonwealth
From the early 1980s Commonwealth Governments
have steadily sought to place government administration and the
Australian Public Service (APS) on a more business-like
footing.
Whilst previous reforms should not be
under-valued or ignored, the watershed for modernising and
improving Commonwealth financial management and practices was the
publication of two White Papers in the early 1980s: Reforming
the Australian Public Service (1983) and Budget
Reform (1984).
The Financial Management Improvement Program
(FMIP) which followed those Reports encompassed a range of reform
initiatives that have reshaped the APS and, in the familiar
lexicon, refocussed Commonwealth public administration on
'outcomes' and 'efficiency' rather than on 'processes' and
'effectiveness'.
To quote the then Joint Committee of Public
Accounts (JCPA):
The focus of FMIP reforms [was] to:
-
- permit more strategic ministerial oversight and financial
management of the impact of government programs;
-
- encourage contestability or market competition to influence the
way in which goods and services are provided; and
-
- allow managers greater flexibility in deploying resources at
the same time as requiring greater accountability for outcomes in
program delivery.
Initiatives such as devolution of
responsibility, the running costs arrangements, program management
and budgeting, user charges, contracting out and corporate planning
all fall within the broad framework of the reform process.
Accrual accounting can be characterised as being
one element of the various commercial reforms which have been
introduced into the APS.(4)
From 1983-84, statutory authorities were
required to report on an accrual basis. Modifications to cash
reporting by departments and agencies began in 1988 and were
enhanced in stages, involving improved reporting of assets and
liabilities, with full accrual accounting coming into operation as
of 1994-95. (5)
In 1996, the National Commission of Audit
reported that all government business enterprises and some
agencies, principally the (then) Department of Administrative
Services, whose core business involved the provision of services to
other Commonwealth agencies on a commercial basis, had moved to a
full accrual framework.(6)
Incremental but steady progress to accrual
accounting did not, however, characterise the performance of budget
dependent agencies. By the mid 1990s only five out of 65 of these
bodies had made significant progress towards managing on an accrual
basis.(7)
Indeed, the first of two JCPA studies in the mid
1990s in fact concluded that the introduction of accrual accounting
was not a fundamental part of the public sector financial
management reform process.(8)
To quote the JCPA's (August 1995) Report:
... up until 1990 [the Department of] Finance
had stated that there were no immediate plans to introduce accrual
accounting methods to Commonwealth Departments.
The common wisdom at the time was that
traditional cash-based forms of public sector financial reporting
were appropriate and sufficient for budget sector agencies. The
major reason for this belief was that such reporting reflects the
cash-based nature of parliamentary appropriations and represents a
sound means of ensuring that public monies are spent in the manner
approved by Parliament.(9)
Increased commercial pressures and the
advantages for some managers in adopting accrual accounting laid
the groundwork for further progress. Three significant reports
released between 1995-96 provided much of the intellectual and
political underpinning for the measures contained in the present
Bill.
Joint Committee of Public Accounts, Report
No.338, 'Accrual Accounting - A Cultural Change', August
1995
This unanimous report of the JCPA supported the
spread of accrual accounting practices in the APS, specifically
recommending that:
-
- The Government should make a statement stressing the value of
accrual information as an aid to effective management of public
resources and supporting the move to full accrual accounting for
Commonwealth agencies.
-
- All agency heads should:
-
- commit themselves and their agencies to implementation of
accrual management systems and practices; and
-
- prepare detailed implementation plans to guide the development
of accrual management systems and practices in their agencies -
including statements of systems redevelopment requirements, staff
training etc.
-
- The Office of Government Information Technology [as it then
was] should expedite work on the review of Commonwealth personnel
and financial management systems and take account of the need for
full accrual accounting functionality in any integrated management
system proposed.
-
- The Government should consider:
-
- providing supplementary funding to agencies to help them
redevelop their financial management systems so as to provide full
accrual accounting functionality; and
-
- making interest free loans available to agencies to help in the
transition from cash based accounting systems to accrual based
systems.
-
- The Government should commit itself to the preparation, at
least annually, of whole of government reports for the
Commonwealth.(10)
Joint Committee of Public Accounts, Report
No.341, 'Financial Reporting for the Commonwealth: Towards
Greater Transparency and Accountability', November
1995
The report examined potential improvements in
Commonwealth financial reporting practices that could flow from the
move to accrual accounting in government agencies. The JCPA
focussed on the use of 'whole of government reporting' to give a
picture, not only of the government's revenue and expenditure, but
also its assets, liabilities, and resulting financial position.
The Report discussed:
-
- what the JCPA considered to be an acceptable timetable for
implementing whole of government reporting for the
Commonwealth
-
- the form and content of whole of government reports
-
- how government business enterprises should be shown in
Commonwealth financial reports, and
-
- how the Commonwealth should account for its portfolio of
disparate assets.(11)
Specific recommendations included that:
-
- The Government should commit itself to the preparation of
audited whole of government reports by the beginning of the 1997-98
financial year.
-
- The Government should ensure that Government Business
Enterprises and Public Financial Institutions within the government
reporting entity are included on a full consolidation basis in
Commonwealth whole of government reports.
-
- As a matter of priority, the Department of Finance and the ANAO
should develop a framework for the recognition and valuation of
Commonwealth assets managed by Commonwealth agencies.
-
- As well as supporting the preparation of annual audited whole
of government reports by 1997-98, the Government should commit
itself to the preparation of unaudited six monthly whole of
government reports by 1999-2000.
-
- The Government should prepare and introduce into parliament
legislation to establish a fiscal reporting framework binding on
Commonwealth governments.(12)
National Commission of Audit, Report to Commonwealth
Government, June 1996
The National Commission of Audit was
established, in accordance with a pre-election commitment, by the
Howard Government in March 1996.
The Commission was given a broad brief to report
on a gamut of issues affecting Commonwealth finances and its report
reflects those wide terms of reference.(13)
[The following summary of the Commission's
findings is largely extracted from Current Issues Brief No.23
of 1995-96 prepared by Denis James of the Information and
Research Services.]
Accrual Accounting
Currently, most government departments and
agencies operating on the Commonwealth Public Account manage their
accounts on a cash basis. The Budget itself is compiled on a cash
basis, as are forward estimates of outlays. Reflecting this
process, Parliamentary appropriations are also prepared on a cash
basis.
However, a cash based accounting system may not
give a true picture of the actual annual resource costs incurred by
agencies in performing their activities. As such, a cash based
system is an imperfect tool for efficient financial management
within agencies and makes it difficult for performance and
accountability to be scrutinised and benchmarked by Parliament, the
community or even by the agencies themselves.
Already, all Commonwealth agencies are required
annually to table audited financial statements on an accrual basis,
but few have implemented accrual based financial management
information systems and practices which would enable them to budget
and manage their programs on an accrual basis. Thus accrual
reporting was relatively widespread but full accrual accounting was
not the norm.(14)
The National Audit Commission recommended that
the Government should formally adopt accrual principles as the
basis for an integrated budgeting, resource management and
financial reporting framework, both at the agency level and at the
aggregate Commonwealth budget sector level. The Commission also
stated that such a framework needed to be in place by December
1997. At the agency level, accrual budgets should form the basis of
financial performance targets to be reported upon in their annual
reports. In the Commission's view, such targets should have been
ready for implementation with the 1998-99 Budget.
The Commission further recommended that the
Commonwealth Budget should be presented in the Budget Papers on an
accrual basis as from the 1998-99 Budget. The forward estimates,
which form the basis of much Budget policy consideration, were also
to include the accrual implications of policy proposals and
commitments.
The Budget appropriations included in the
Appropriation Bills would represent the cash flow implications of
the accrual budgets for each government agency. The Commission
noted that the present division of appropriations between
Appropriation Bills No 1 and 2, which is designed to facilitate
parliamentary consideration of the legislation within the terms of
section 53 of the Constitution, is not conducive to good resource
management. The Commission therefore recommended that the
Government, in consultation with the Parliament 'as appropriate',
should review the structure and presentation of items contained in
the Appropriation Bills. It further recommended that, at the same
time as the Appropriation Bills are introduced into Parliament,
agencies should provide documentation which clearly establishes the
accrual basis for the proposed appropriations.
The Commission recommended that Commonwealth
Departments, agencies and statutory authorities should also be
required to table audited annual financial statements, on an
accrual basis, in the Parliament by 30 September, with their first
reports relating to the financial year 1997-98.
While the Department of Finance should be
responsible for co-ordinating a strategy for the implementation of
a full accrual accounting framework, the Commission felt that chief
executive officers and senior managers should be responsible for
the accrual resource management reforms in their own agencies, as
they will be held responsible for the performance of their agencies
which will be highlighted by those reforms.
Whole of Government Financial
Reporting
The National Commission of Audit was required to
report on the state of the Commonwealth's finances, including
identification of assets and liabilities and contingent
liabilities. The Commission addressed this matter by presenting a
set of consolidated financial statements identifying the financial
position of the Commonwealth Government as a whole, that is
including the general government sector, public trading enterprises
(PTEs) and public financial enterprises (PFEs), for 1994-95. The
general government sector includes those government departments and
agencies which are substantially involved in the provision of
non-market services. As such, it encompasses the Commonwealth
budget sector, although it also includes a number of agencies, such
as the CSIRO, the National Library and the ABC, which operate
off-budget.
At a whole of government level, the Commission
reported a consolidated deficit of $10.6 billion. This result
reflects the fact that the general government sector returned a
$12.1 billion deficit, while its GBEs were in surplus. This result
is not surprising since in 1994-95, an $11.6 billion deficit (on a
cash basis) was recorded by the budget sector. (Had the accounts
been prepared for 1995-96, on the basis of current budget
estimates, the overall financial outcome would most likely have
been somewhat healthier.)
The Commission recommended that whole of
government statements should be prepared on a trial basis for
1995-96, although they need not be audited. The statements for
1996-97 should be fully audited and ready for tabling in Parliament
by 30 September 1997. In addition to the year end statements, the
Commission recommended that the Government should, as from the
financial year 1997-98 prepare mid year statements as of 31
December. These need not be formally audited but should be reviewed
by the auditor. The tabling of such mid-year consolidated
statements would represent one element of the Charter of Budget
Honesty.
The Commission also recommended that the primary
financial statements should contain a statement of revenues and
expenses, a statement of assets and liabilities and a statement of
cash flows for the whole of government as well as for the general
government, PTE and PFE sectors. The statements should also
separately identify the budget sector.
Charter of Budget
Honesty
In his first Headland speech in June 1995, the
Prime Minister, Mr Howard, committed a Coalition Government to a
Charter of Budget Honesty that would encompass both reporting
requirements and the statement of clear fiscal policy
objectives.
At the time that the National Commission of
Audit reported, the Commonwealth Government was not required to
state its fiscal policy nor was it required to set fiscal targets
and report against them. Despite this lack of compulsion, past
Australian Governments have generally outlined their forecasting
framework and the general thrust of their fiscal policy in
Statement No. 2 of the Budget documents and in various other major
economic statements. However, they have only occasionally publicly
set fiscal targets for themselves, one relatively recent example
being the 'trilogy' pledges of the Hawke Government in 1984.
In order to promote economic and financial
transparency, to raise general awareness of the Government's fiscal
intentions and to encourage governments to act responsibly, the
Commission recommended that legislation should be introduced
requiring governments to clearly state their fiscal strategy and to
set out comprehensive fiscal reporting standards. The legislation
contemplated would have required governments to set fiscal targets
and benchmarks, although these would not be enshrined in
legislation.
The Commission envisaged that benchmarks would
reflect current fiscal issues. They may specify that a particular
level of public saving should be achieved or that a specified debt
level should be reached. Such benchmarks were intended to be
unambiguous and leave no doubt as to whether they have been
achieved or not.
Reporting
Requirements
Already the Government reports on the economic
and fiscal outlook in Budget Statement No. 2. A brief outlook
restatement is also provided in the Government's mid-year review,
which is published in the form of a Press Release. The Commission
recommended that:
-
- the results of the mid-year review should be published in
January (if the Budget is released in May) and be expanded to
contain information beyond the current budget year;
-
- a fiscal policy statement outlining the Government's current
fiscal strategy should accompany the presentation of these two
reports; and
-
- a report on the economic and fiscal outlook using the latest
update information and incorporating all post-budget policy
decisions should be published approximately one week after the
calling of every federal election.
The proposed fiscal policy statements were to be
the medium through which the government announced its fiscal
targets and benchmarks. They were also to provide information on a
range of economic indicators, such as the headline budget balance,
the underlying budget balance, public debt by sector and so forth.
The Commission recommended that such indicators should also be
published prior to elections. Fiscal policy statements would
identify discretionary measures that are intended to smooth the
economic cycle and would contain an explanation of any change in
such discretionary settings.
The Government currently issues monthly
Statements of Commonwealth Financial Transactions, which provide
details of outlays, revenues and balances for the month in question
along with cumulative totals for the financial year to date. The
Commission proposed that these statements would continue to be
produced, although they would eventually be prepared on an accrual
basis.
Consolidated reports showing the state of the
Commonwealth's finances would be prepared and published twice a
year. Tax expenditures should be treated as closely as possible
like program expenditures in these and all other published fiscal
reports.
Recent Developments
Since the National Commission of Audit reported
in June 1996, the Commonwealth has moved to implement many of the
changes proposed by the Commission and in the two JCPA reports
referred to above.
Amongst the more significant developments
are:
Charter of Budget Honesty
Charter of Budget Honesty legislation was first
introduced into the Parliament on 11 December 1996 and the
Charter of Budget Honesty Act 1998 came into effect on 17
April 1998.
The legislation picks up a number of the
National Commission of Audit recommendations, hence:
-
- the 1997-98 and 1998-99 Budget Papers provided for more
information on the Government's fiscal agenda and position
-
- further information has been provided in comprehensive
assessments of the Mid-Year Economic and Fiscal Outlook
-
- the Government is required to publish a pre-election Economic
Outlook and Fiscal Outlook report within 10 days of the issue of
the writs for the general election.(15)
Whole of Government Reporting
Following the National Commission of Audit
study, in 1996-97 a second comprehensive trial of consolidated
whole of government financial statements for 1995-96 was
conducted.
Guidelines for the Financial Statements for
Commonwealth Departments and the Guidelines for the Financial
Statements for Commonwealth Authorities were substantially revised
during 1996-97, to enhance the quality and effectiveness of
financial reporting by Commonwealth Departments and authorities and
at the whole of government level.(16)
Accrual Accounting
A 1996-97 scoping study recommended the phased
implementation of accrual-based financial framework for the
Commonwealth.
In April 1997 the Government accepted the
Departmental of Finance's advice, and decided to implement an
accrual-based outcomes and outputs framework for managing resources
in the public sector. The first accrual Budget will be in
1999-2000.(17)
Significant Departments and agencies were
required to prepare 'first draft' accrual budget statements and
forward them to the Department of Finance and Administration by
December 1998.
In 1997 the Commonwealth's Management Advisory
Board engaged KPMG Management Consulting and Stephen Anderson Pty
Limited to conduct a survey to benchmark APS financial management
practice against that of other governments and the private
sector.
The results of the survey indicated a 'large
gap' between current Commonwealth practice and 'best practice'. As
noted in the subsequent Management Advisory Board Report,
Beyond Bean Counting: Effective financial management in the APS
- 1998 & Beyond, (December 1997):
-
- only 4% of Commonwealth core government agencies use accrual
data for internal management reports compared to over 50% in State
Government jurisdictions and more than 90% in the private
sector
-
- 80% of Commonwealth line managers consider accrual accounting
to be of limited or no value compared to just under 30% of the line
management in State Government agencies
-
- less than 50% of core Commonwealth agencies know their full
product/service costs
-
- less than 15% of core Commonwealth managers consider that they
need a business management education background
-
- less than 10% of finance staff operating in the Commonwealth
hold professional accounting qualifications
-
- 76% of core Commonwealth CEOs and 68% of line managers reported
satisfaction with financial information provided to them.(18)
The New Framework
An outline of the new accrual accounting regime
is presented in a number of Department of Finance and
Administration publications.(19) In essence the new framework
focuses on:
-
- outputs
-
- the resources being consumed and/or administered by agencies on
behalf of the Commonwealth
-
- outcomes
-
- costs (incorporating a full accrual based measure).
To again quote from the official
documentation:
Agencies and authorities will be required
to:
-
- specify and set prices for the outputs they will deliver and
describe planned outcomes to which outputs contribute
-
- specify the performance information required to monitor, manage
and account for output delivery and the achievement of actual
outcomes
-
- report on performance accordingly.(20)
Timetable
The timetable for implementing accrual budgeting
is:
1998-1999 Trial Accrual Budget
for participating agencies after the cash-based Budget has been
bought down
1999-2000 Implementation of the
new framework including accrual budgets and estimates, and
'uploading' of
agency monthly accrual financial information to the DOFA central
system
1999-2000 Ongoing review and
refinement of outcomes and output structures and associated
performance
information.
Key Date
|
What
|
Comment
|
October 1998
|
Agencies need to develop their outcome and
output specifications including price setting as input to the
1999-2000 Budget process.
|
Agencies should commence specification as soon
as possible to ensure that they have time to clear specifications
with key stakeholders.
|
Fourth quarter 1998
|
Agencies will begin to input information to the
central Accrual Information Management System (AIMS) as part of the
1999-2000 Budget process.
|
AIMS is planned to be operational from the
fourth quarter 1998.
|
May 1999
|
First Accrual Budget
|
|
1 July 1999
|
Agency accrual-based performance management
(including financial) systems should be in place by 1 July 1999 at
the latest.
|
Agencies that have been able to install pilot
accrual systems in 1998-99 are likely to realise significant
benefits.
|
Commencing July 1999
|
Agencies to upload accrual monthly financial
information to AIMS.
|
|
Source: Department of Finance and
Administration, 'Specifying Outcomes and Outputs: accrual
budgeting', 1998, p 11. Note: Within this timetable, agencies will
need to develop a strategy to enable their ministers and advisers
to understand their agency business in an accrual environment. One
of these strategies could be to involve ministers' staff in accrual
awareness sessions and training exercises conducted by individual
departments.
Consolidated Revenue Fund
The CRF is the main working fund for
Commonwealth finances, it is mandated by the Constitution. Section
81 of the Constitution requires that all revenues or moneys raised
by the Commonwealth must be credited to the CRF. This requirement
is reflected in section 18 of the Financial Management and
Accountability Act 1997.
Section 83 of the Constitution provides that
moneys cannot be drawn out of the CRF without Parliamentary
approval.(21)
The FMA Act also provides for a number of
related funds which establish 'pools' of money available to meet
specific uses under Ministerial direction. These legislated Funds
are the Loan Fund (section 19), the Reserved Money Fund (section
20) and the Commercial Activities Fund (section 21).(22) In each
case, however, money may not be transferred into these funds
without first being paid into the CRF. Money is then transferred
from the CRF into these funds by means of a standing appropriation
provision contained in each of the relevant sections referred to in
this paragraph.
The system of accounting is in essence cash
based and is not entirely consistent with an accrual accounting
regime.
As noted above and in the Explanatory
Memorandum,(23) the primary change sought by the Bill is to repeal
those provisions dealing with 'fund accounting' while retaining the
essential features of funds by establishing 'Special Accounts'
within the CRF.
As noted in the Minister's Second Reading
Speech, the Solicitor-General has advised that the proposed accrual
appropriation measures can operate exclusively within the CRF and
do not require moneys for accrued costs to be paid into another
fund to avoid lapsing. The Government has also advised that the
appropriation bills will be amended to reflect these new accounting
arrangements.(24)
Main Provisions
Clause 5 is a transitional
provision. It provides for the replacement and renaming of existing
components of Reserved Money Fund and Commercial Activities Funds
so as to convert them to Special Accounts within the CRF.
Clauses 6-7 are also
transitional provisions and make related changes to instruments to
account for the abolition of the Loan Fund and replace certain
references to the CRF with references to 'the Commonwealth'.
Section 54 of the FMA Act presently requires
that the Finance Minister must publish monthly a Statement of
Commonwealth Financial Transactions. Clause 8
imposes less rigorous reporting requirements under section 54 of
the FMA Act in the period immediately after the proposed amendment
come into effect. The proposed transitional period of about 9
months does not appear excessive.
Schedule 1 provides for
amendments to the FMA Act. These amendments are principally changes
to nomenclature and definitions, reflecting the substantive changes
discussed above.
Item 17 provides for the repeal
of Division 1 of Part 4 of the FMA and the abolition of fund
accounting.
Items 20-22 provide for the
creation of Special Accounts within the CRF. Such accounts may be
established by the Minister for Finance (proposed section
20) or by another Act (item 14). 'Special
Accounts' may be viewed as separate ledgers within a single the
CRF.
Item 29 repeals and replaces
section 39 of the FMA Act dealing with the Treasurer's powers to
invest public moneys. The powers conferred on the Treasurer are
wider than those currently available to him under the Loan
Consolidation and Investment Reserve Act 1955 repealed by
item 34 of the present Bill.
Proposed subsection 39(2) will
permit the Treasurer to 'invest public money in any authorised
investment' for the purpose of managing Commonwealth debt. The
phrase 'authorised investment' is defined in proposed
subsection 39(10) and appears to extend to any
form of investment that may be prescribed by regulation.
Item 31 repeals and replaces
section 54 of the FMA Act. The new section 54 will
leave the Minister with greater discretion in determining what form
the monthly Statement of Financial Transactions will take.
Concluding
Comments
The proposed changes are significant but largely
facilitative rather than substantive.
Any protracted delay to passage or rejection of
the Bill would cause a number of difficulties for those responsible
for implementing the move to full accrual accounting. However, the
spread of accrual accounting through the Commonwealth public sector
would not be significantly impaired.
Despite the medium to long term benefits, the
initial cost of the move to full accrual accounting should not be
under-estimated,(25) particularly the differential impact of the
changes on smaller Departments and agencies. On a related issue, it
may be noted that the Government appears to have rejected the
JCPA's (August 1995) recommendation that supplementary funding be
provided to agencies to help them redevelop their financial
management systems to facilitate the move to full accrual
accounting.(26)
It should also not be assumed that the spread of
accrual accounting will remove the need to maintain information on
cash flows.(27)
Documentation prepared by the Department of
Finance and Administration to raise understanding and awareness of
the proposed changes is impressive and has been referred to in the
course of this Digest.
It is at least arguable, however, that the full
ramifications of the proposed changes are not yet fully
comprehended by those who will be affected by them. Anecdotal
reports suggest that the implementation timetable may be somewhat
ambitious.
Commenting on the adaptive process, the ANAO has
observed recently:
Public sector administration has therefore
clearly been markedly impacted by market-orientated reforms. Other
complementary changes taking place include the introduction of
accrual based outcomes and outputs budgets which is planned for
1999-2000 and will help identify the true cost of public sector
activities and the results being achieved. However, the
introduction of such a significant reform presents a key challenge
to agencies in managing the necessary cultural change including
ensuring that staff have the necessary skills, and that new
electronically based accounting and other management information
systems are effectively in place.(28)
Endnotes
-
- Commonwealth entities such as Government Business Enterprises
and Commonwealth Companies have for many years utilised a system
accrual accounting.
- Financial Management Legislation Amendment Bill 1999,
Explanatory Notes, p 3.
- Refer: National Commission of Audit, Report to the
Commonwealth Government, June 1996, esp. pp 211-240.
- JCPA, Report No.338, 'Accrual Accounting A Cultural
Change', August 1995, pp 7-8.
- Op cit, 215.
- Ibid.
- JCPA, op cit, August 1995, p 45.
- Ibid, p 8.
- Ibid, p 8.
- Ibid, pp xvi-xviii.
- JCPA, Report No.341, p xv.
- JCPA, Report No.341, pp xvi-xx.
- Refer Denis James, Parliamentary Research Service, Current
Issues Brief No.23 of 1995-96, 'More of the Same or a Brave
New World? : The National Commission of Audit', Department of the
Parliamentary Library, 25 June 1996.
- This has remained the position until late 1998 when the pace of
change has accelerated considerably.
- The first pre-election report was issued on 8 September 1998.
- Department of Finance, Annual Report 1996-97, p 23.
- Department of Finance and Administration, Specifying
Outcomes and Outputs: accrual budgeting, 1998, p vii.
- Management Advisory Board, Beyond Bean Counting: Effective
Management in the APS - 1998 and Beyond, 1997, pp 3 and 23.
- Department of Finance and Administration, Specifying
Outcomes and Outputs: accrual budgeting, 1998 and the useful
kit containing a number of key documents and training material:
Department of Finance and Administration, The Structure and the
Substance: Financial management and beyond, 1998.
- Department of Finance and Administration, Specifying
Outcomes and Outputs etc, p 1.
- Northern Suburbs General Cemetery Trust v Commonwealth (1993)
176 CLR 555.
- All section references are to the FMA Act.
- p 1.
- Parliamentary Debates (Hansard), House of Representatives, 10
February 1999, p 2284.
- JCPA, Report No.338, 'Accrual Accounting A Cultural
Change', August 1995, pp 48-51. National Commission of
Audit, Report to the Commonwealth Government, June 1996, esp
pp 229-232.
- JCPA, Report No.338, pp 54-59.
- National Commission of Audit, op cit, p 222.
- ANAO, The Auditor-General Audit Report No.33, 'Audit
Activity Report: July to December 1998: Summary of Outcomes', 1999,
p 9.
Appendix
Table 9.1: Comparison of accrual and
cash transactions
Transaction or event
|
Accrual reporting
|
Cash reporting
|
Purchase of services on credit
|
An expense and a liability would be recognised
immediately
|
No transaction would be reported until payment
is made
|
Asset sales
|
The asset sold would be replaced by cash and the
difference between its recorded value and sale proceeds would be
shown as a gain or loss
|
The gross sale proceeds, not just the gain or
loss on sale, would be shown
|
Loss or destruction of an asset
|
A loss equal to the recorded value of the asset
would be shown
|
No event would be shown unless the asset were
replaced
|
Consumption of assets through use
|
Depreciation equivalent to the service potential
consumed would be shown as an annual expense over the useful life
of the asset
|
No event would be shown until a future year when
the asset is replaced and paid for in cash
|
Acquisition of assets
|
The acquisition cost (less annual depreciation)
would be carried forward as an asset only depreciation included in
the operating annual surplus or deficit
|
The full cost would be shown as a capital outlay
in the year of acquisition an included in the surplus or
deficit
|
Deferred payment of employee benefits (eg
superannuation)
|
An annual expense and an accumulating liability
would be shown
|
No event would be shown until a future year when
payment is made
|
Foreign exchange transactions
|
Gains and losses on exchange would be shown in
the year exchange rates vary
|
Gross cash transactions would be shown without
indicating any gain or loss
|
Increase in the value of an asset
|
A revaluation would increase the value of
assets, reserves and future depreciation
|
No revaluation would be shown
|
Source: Department of Finance from National
Commission of Audit - Report to the Commonwealth Government June
1996
Bob Bennett
9 March 1999
Bills Digest Service
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