2012-13
Certificate of Compliance
Report to the ParliamentDEPARTMENT OF FINANCE
2012-13
Certificate of Compliance
Report to the ParliamentDEPARTMENT OF FINANCE
DEPARTMENT OF FINANCE
ISSN: 1838-6865 (Print)
ISSN: 1838-6873 (Online)
Creative Commons Licence
With the exception of the Commonwealth Coat of Arms, the Certificate of Compliance Report to the Parliament 2012-2013 is issued under a Creative Commons BY licence. The terms of the BY licence can be found here: http://creativecommons.org/licenses/by/3.0/au/.
The document must be attributed: ’Commonwealth of Australia, Certificate of Compliance Report to the Parliament 20122013’.
Use of the Coat of Arms
The terms under which the Coat of Arms can be used are detailed on the following website: http://www.itsanhonour.gov.au/coat-arms/
Acknowledgements
Photographs taken by Steve Keough, Steve Keough Photography
Other photographs from the Department of Finance collections.
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Foreword
Foreword by the Minister
This is the fifth public report on the annual Certificate of Compliance (Certificate) process for agencies under the Financial Management and Accountability Act 1997 (FMA Act). It aggregates individual agency results for the 2012-13 financial year.
Since its introduction in 2006-07, the Certificate process has resulted in improved understanding of, and compliance with, the Australian Government’s financial management framework. In this way, the Certificate has played an important role in ensuring agencies are accountable for the public resources they manage.
The chief executives of all agencies under the FMA Act are required to provide a completed Certificate to their portfolio Minister each year. The Certificate process is an important means of identifying and disclosing instances of non-compliance with the financial management framework, as a basis for continuous improvement within agencies and morebroadly.
Overall, agencies have again reported relatively low levels of non-compliance when compared to the many millions of financial transactions they undertake each year on behalf of Government. It is important to assess the results in that context.
For the 2012-13 reporting period, agencies reported an increase in non-compliance of about 10 percent compared to last year. That said, this result is still comparable to performance over the past four years. As in previous years when reported noncompliance has increased, this is strongly correlated to changed financial management framework requirements. This year’s increase is due to the introduction of mandatory reporting requirements in the Commonwealth Procurement Rules (CPRs), which came into effect on 1 July 2012. Removing the impact of this new requirement, overall non-compliance is in line with the downward trend experienced over previous years.
From 1 July 2014, Commonwealth entities operating under the FMAAct or the Commonwealth Authorities and Companies Act 1997 will operate under the the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The PGPA Act moves from a prescriptive compliance-based approach to financial management to a broader principles-based approach to performance and resource management. Instead of legislative provisions that focus on process, the PGPA Act contains a stronger focus on duties, internal controls and risk. The new framework will continue to provide assurance to the public that an appropriate standard of accountability and assurance is in place and resources are being well managed. Any future compliance reporting will be considered in the context of the new framework.
Mathias Cormann
Minister for Finance
January 2014
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Contents
Foreword iii
Contents iv
Introduction 2
Part 1: 2012-13 results by category 21
Part 2: 2012-13 results by portfolio group 33
Appendix: List of portfolio groups for Certificate purposes 46
2
Introduction
1. Introduction
This is the fifth annual Report to the Parliament on the Certificate of Compliance (Certificate) process. The Report provides an aggregate analysis of agency results for the 2012-13 financial year.
2. The Certificate
The Certificate process aims to improve understanding of the financial management framework, and strengthen agency processes, through the identification of noncompliance issues and undertaking of action to improve processes. The Certificate promotes continuous improvement within agencies. Analysis of Certificate results also provides an opportunity for the Department of Finance (Finance) to identify issues across agencies, thereby highlighting elements of the framework that may require improvement.
The chief executives of all agencies under the Financial Management and Accountability Act 1997 (FMA Act) are required to provide a completed Certificate to their portfolio Minister by 15October each year. The Certificate is also copied to the Minister for Finance (FinanceMinister).[1]
The Certificate covers the financial year, 1July to 30June. Seven rounds of reporting have been completed to date since 200607. This year, 110FMA Act agencies were required to prepare Certificates.
The Certificate process is based on a self-assessment by agency chief executives. It provides a comprehensive overview of each agency’s compliance with the financial management framework. Chief executives are required to certify their agency’s compliance during the previous financial year with:
· the FMA Act
· the Financial Management and Accountability Regulations 1997 (FMARegulations)
· the Finance Minister’s delegations to agency chief executives, as amended from time-to-time [2]
· selected financial management policies of the Commonwealth.[3]
All instances of non-compliance must be reported in the Certificate, focusing on action taken by agencies to improve their processes. The requirements of the FMA Act and FMA Regulations mean that compliance is not assessed based on materiality. That is, where instances of noncompliance are identified with no or immaterial financial consequences, they must still be reported in the Certificate.
However, it is not intended that all actions and transactions of an agency be checked. It is expected that chief executives will ensure that their agency has sufficient processes and controls in place to provide reasonable confidence that staff members are complying with the financial management framework.
Theprocesses, systems and controls that chief executives put in place to promote compliance with the financial management framework may vary between agencies, depending on their size, operations, structure and activities. In most cases, these processes and controls are an extension of those processes that give confidence to the chief executive on matters such as the use of delegations and budgetary management. Chief executives therefore complete the Certificate based on their agency’s internal control mechanisms, management and audit committee advice.
In 2012-13, 110 FMA Act agencies reported a combined total of 14,027 instances of noncompliance. Thisoutcome represents an increase of approximately 10 percent from the 201112 results (see ‘Overall Trends’).
The instances of non-compliance reported in agency Certificates generally arise from one or more of the following:
· inaction by individuals, such as not seeking the necessary approvals for particular expenditure
· lack of timely action by individuals, such as not banking public money within the required timeframe or not meeting the timeframe to report publicly on contracts entered into over a certain threshold
· particular actions taken by individuals, such as relying on an outdated delegation or drawing right
· lack of awareness of key requirements, due to changes in staffing, structures or activities
· system or process issues, either at the agency or sub-agency level.
The Certificate also requires chief executives to state whether the agency is operating within the agreed resources for the current financial year and to certify that the agency has adopted appropriate management strategies for risks that may affect its financial sustainability.
3. Structure of the Report
The Report records the outcomes of the 2012-13 Certificate process at a ‘portfolio group’ level, drawing on data contained in the individual Certificates prepared by FMA Act agencies. For the purposes of this report, a portfolio group comprises all agencies within the relevant portfolio as at 30June 2013. In 2012-13, there were 20 portfolio groups comprised of 110 agencies.[4] The agencies comprising each portfolio group for the 2012-13 financial year are listed in the Appendix.
In their individual Certificates, agencies report instances of non-compliance against specific sections and subsections of the FMA Act, FMA Regulations, the Finance Minister’s delegations to agency chief executives and selected policies of the Commonwealth. Six categories are used to report on these results in a meaningful way.[5] These categories represent key elements of the financial management framework:
i. the commitment of public money by agencies
ii. the use of drawing rights by agencies
iii. the proper use of financial resources
iv. banking and investment by agencies
v. the maintenance of agency accounts and records
vi. miscellaneous requirements.
Part 1 reports on instances of non-compliance by type. The combined total of 14,027 reported instances of non-compliance is presented against the six categories.
Part 2 reports on instances of non-compliance by portfolio grouping. The data is presented as a percentage of each portfolio group’s share of the combined total of 14,027 reported instances of noncompliance.
4. Overall Trends
Seven rounds of reporting have been completed to date, covering the 2006-07 to 2012-13 financial years.
As noted in previous reports, considerable work has been undertaken by agencies to strengthen internal controls and reporting processes since the introduction of the Certificate. Thematuring of agencies’ internal mechanisms, and the more systematic identification and remediation of instances of noncompliance, is reflected in the number of instances of noncompliance reported by agencies over the seven rounds of reporting.
At an aggregate level, agencies reported a relatively low number of instances of noncompliance in the first round of reporting (2006-07), followed by an increase in reported instances of noncompliance in round two (2007-08), as internal systems bedded down and matured. Instances of non-compliance halved in 2008-09, to a level somewhat above the total reported in 2006-07, as agencies sought to address the issues identified in the first two rounds of reporting. In 2009-10, there was a relatively small increase in reported instances compared to 2008-09, as agencies worked to implement new reporting requirements, as a result of the introduction of the Commonwealth Grant Guidelines (CGGs). The results for 2011-12 continued the decreasing trend in reported non-compliance reflecting continuous improvement, both in agency processes and across the framework more broadly.
The 2012-13 results reflect a small increase of reported instances of noncompliance, due to the impact of the new reporting requirements in the Commonwealth Procurement Rules (CPRs), which involve publicly reporting contracts within 42 days. Overall, there was a reduction in reported noncompliance against four categories and an increase in two categories. This is discussed further under ‘Results against the Six Categories’.
Decreases, due to continuous improvement, can be balanced against short-term increases in reported noncompliance with the introduction of new requirements. The reduced non-compliance against four of the six categories demonstrates agencies’ continuing commitment to improve processes and staff members’ understanding, in order to address noncompliance. For example, in 2012-13, several agencies have significantly reduced non-compliance with the requirements involving documenting approvals committing public money. This reinforces the positive impact of the Certificate in encouraging agencies to improve their systems and processes.
Chart A: Instances of non-compliance: trends over seven years
Chart A tracks the total number of reported non-compliance over the seven years of the Certificate. The dotted line for 2012-13 removes the impact of noncompliance with the new requirement in the CPRs. This demonstrates the continuing downward underlying trend in noncompliance and the impact that introducing new requirements can have.
5. Context
The total number of instances of non-compliance reported by agencies can be contrasted with the substantial number and scope of financial activities undertaken by agencies. While no accurate estimate is available, agencies as a whole undertake many millions of financial activities valued at several billion dollars each financial year.
By way of example:
· the Australian Taxation Office, which employed over 22,000 ongoing staff, has advised that in the 2012-13 financial year it processedover13.7million refunds valued in excess of $95billion
· the Treasury, which employed 920 full-time equivalent staff as at 30 June 2013, has advised that it processed more than 180,000 financial transactions in 201213, involving $12.0billion in receipts to the Treasury and $88.1billion in payments
· the Department of Defence has advised that in the 2012-13 financial year it undertook approximately 1.7 million financial transactions
· the Defence Materiel Organisation, whichemployed over 5,500 staff across Australia, has advised that it undertook over 640,000financial transactions during 2012-13 with a value over $9.9 billion
· the Department of Social Services has advised that the former Department of Families, Housing, Community Services and Indigenous Affairs, processed 118,668 payments during 2012–2013
· the Australian Customs and Border Protection Service has advised that it employs approximately 5,500 staff in 54 locations across Australia, who processed 655,031 transactions during 2012-13, involving payments of over $1.5 billion and receipts of more than $13.2 billion
· small agencies are also required to manage large volumes of transactions relative to their size and often in complex circumstances (e.g. the Administrative Appeals Tribunal has advised that in 2012-13 it processed just under 12,000 financial transactions).
While the number of reported instances of non-compliance is significant, the level of reported non-compliance is low when compared to the substantial number of government financial activities occurring each year.
6. Results against the Six Categories
Chart B records the combined total of all (14,027) instances of non-compliance reported in 2012-13 against six categories.
Since the introduction of the Certificate, reported non-compliance has been concentrated in two key areas:
· the commitment of public money
· banking and investment by agencies.
In 2012-13, there was a decrease in non-compliance with the banking and investment requirements, compared to previous years.
Chart B: Percentage of all non-compliance by category for 2012-13