Commitments to spend public money (FMARegulations 7 to 12)

Key points

This circular:

-applies to all agencies under the Financial Management and Accountability Act 1997 (the FMA Act) and their Ministers;

-incorporates the 1 July 2010 amendments to the Financial Management and Accountability Regulations 1997 (the FMARegulations) and the 1 March 2011 changes to the FMA Act;

-replaces Finance Circular 2009/05 Commitments to spend public money (FMA Regulations 7 to 13) and Finance Circular 2007/01 FMA Regulation 10; and

-is available at

Contents
Forewordp. 2
Part 1:Committing public money – an introduction
1.1Key stepsp. 5
1.2Key conceptsp. 6
Part 2:Key legal requirements - commentary
2.1Committing to spend public moneyp. 10
2.1.1Section 44p. 11
2.1.2Regulation 8p. 15
2.1.3Regulation 9p. 20
2.1.4Regulation 10p. 25
2.1.5Regulation 10Ap. 30
2.1.6Regulation 12p. 34
2.2 Grants, procurements and arrangements with outsidersp. 37
2.2.1Regulation 7 (procurement)p. 38
Regulation 7A (grants)p. 38
2.2.2 Section 12 (outsiders)p. 40
Part 3:Workbook – applying the framework
3.1Applying the FMA Regulations – examplesp. 49
3.1.1 Simple spending proposal: catching a taxip. 49
3.1.2 Complex spending proposal: standing offerp. 50
3.1.3Grantp. 51
3.1.4 Arrangement that includes an indemnityp. 52
3.2Using Regulation 10 and 10Ap. 53
3.2.1When is Regulation 10 agreement required?p. 53
3.2.2The Delegationp. 56
3.2.3Worked examplesp. 63
3.2.4Summary of the Delegation for Regulation 10p. 69
3.2.5Regulation 10 agreement request formp. 71

Page 1 of 72Finance Circular 2011/01

Department of Finance and Deregulation

Foreword

Foreword

The FMA Act and Regulations set out the law governing the proper use and management of public money and public property – that is, money and property in the custody or control of the Commonwealth, including money and property held on trust.

This circular provides guidance on the interpretationand operation of section 44 of the FMAAct andRegulations7-12,the core legislative requirements that apply to commitments to spend public money.These provisions apply to all agencies under the FMA Act and to all persons, including Ministers, considering entering into arrangements under which public money is payable or may become payable. It also contains advice on arrangements where a person outside of the Commonwealth handles public money as an allocated official or under an agreement authorised undersection 12 of the FMA Act.

This circular is provided in 3 Parts. Parts 1 and 2 provide an overview of the requirements that apply to committing public money and includes frequently asked questions. Part 3 provides more detailed technicalguidance, primarily on FMA Regulation 10 and 10A. It is aimed at finance staff and relevant project officers who regularly undertake these functions.

The commitment and management of public money is a fundamental part of an FMA Act agency’s day-to-day activities and it is essential that all officials and their Ministers are aware of their legal obligations.

This circular reflects important changes to the FMA Act, which came into effect on 1March2011, and changes to the Regulations, which came into effect on 1 July 2010. Amendments were made to:

-section 44 of the FMA Act to add ‘economical’ to the definition of ‘proper use’;

-Part 4 of the FMA Regulations (i.e. the old Regulations 7-14) to provide a logical and sequential workflow and rationalise definitions and improve readability;

-disapply Regulation 10 where contingent liabilities are assessed as ‘remote’ and ‘nonmaterial’,through the introduction of Regulation 10A;

-de-couple the timing of processes underRegulations 9 and 10, so that Regulation 10 agreement is not required before Regulation 9 approval, alleviating the practical difficulty some agencies had in complying with the timing aspect of the previous requirements;

-provide Chief Executives with the power to allow for their delegates to make subdelegations under the FMA Regulations (Regulation 26); and

-the definition of a ‘grant’ to exclude payments of assistance for the purposes of Australia’s international development assistance program (see Regulation 3A (2)(l)).

The FMA Regulations contain a broad transitional and savings provision that givesagencies until 1July 2011 to update their internal procedures, Chief Executive’s Instructions (CEIs), delegations and related materials.

The FMA Act and Regulations are available at

The amendments to the FMA Regulations have been reflected in a revised Delegation from the Finance Minister to agency Chief Executives and the Finance Secretary, available at

Questions on the application of provisions in the FMA Act andRegulations that relate to commitments to spend public money should be directed in the first instance to your Chief Financial Officer area. For questions relating to this Finance Circular, please contact the Financial Framework Policy Branch at .

Kerry Markoulli

Acting Assistant Secretary

Financial Framework Policy Branch

Financial Management Group

31 March 2011

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Department of Finance and Deregulation

Part 1 – Committing public money - an introduction

Part 1Committing public money – an introduction

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Department of Finance and Deregulation

Part 1.1 – Key steps when committing public money

1.1Key steps

The following provisions of the FMA Act and Regulations apply when considering a proposal to spend public money.They must be considered before any arrangement (such as a contract or funding agreement) is entered intoand theorder of certain steps may be important.

Also consider whether the following requirements apply:

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Part 1.2 – Key concepts

1.2 Key concepts

agency meansa Department of State,or a Department of the Parliament (including persons allocated to the Department by the Regulations),or any agency prescribed under the FMA Regulations (see the FMA Act, section 5, Regulations 4-5 and Schedule 1 of the Regulations).

allocated officialmeans an outsider (any person other than the Commonwealth, an official or a Minister) who performs a financial task. The outsider becomes an allocated official of the FMA Act agencywhen they are undertaking a financial task. Allocated officials are subject to all the requirements of the financial management framework that apply to officials, including the FMA legislation, the policies of the Commonwealth and the relevant agency’s Chief Executive’s Instructions.

appropriation means an authority under the FMA Act or any other law to draw money from the Consolidated Revenue Fund (CRF), whether or not the law concerned uses the word ‘appropriation’ or ‘appropriated’ (see the FMAAct, section 5).

approver means a Minister or agency Chief Executive (including a Chief Executive’s delegate). An approver is authorised to consider and approve spending proposals under Regulation 9. A person may also be authorised to approve proposals to spend public money under legislation other than the FMA Act (see Regulation 3).

arrangement means an arrangement, including a contract or agreement, under which public money is payable or may become payable, other than:

(a)an arrangement for:

(i)the engagement of an employee; or

(ii)the appointment of a person to a statutory office; or

(iii)the acquisition of particular property or services under a general arrangement with the supplier of that property or those services, for the purposes of providing a statutory or employment entitlement; or

(b)an international agreement governed by international law (see Regulation 3).

Commonwealth Grant Guidelines (CGGs) are guidelines that have been issued in relation to grants administration. They can include policies and processes, publication requirements and requirements regarding entering into grants. The CGGs are a legislative instrument and an official performing duties in relation to grants administration must act in accordance with them (see Regulation 7A and the FMAAct, section 64).

Commonwealth Procurement Guidelines (CPGs) are guidelines that have been issued in relation to procurement. They can include policies and processes, publication requirements and requirements regarding entering into procurement arrangements. The CPGs are a legislative instrument and an official performing duties in relation to procurement must act in accordance with them (see Regulation 7 and the FMAAct, section 64).

contingent liabilities,in the context of Regulations 10 and 10A, are commitments that may give rise to a liability as a result of a future event. They often result from indemnities, guarantees, warranties or other commitments of this type which are included in contracts.

financial task means a task or procedure relating to the commitment, spending, management or control of public money. It does not include a task or procedure performed by an outsider under an arrangement or agreement authorised under section 12 of the FMAAct. An outsider means any person other than the Commonwealth, an official or a Minister (see Regulation 3 and the FMAAct, section 12).

grantis defined by Regulation 3A. A grant is an arrangement for the provision of financial assistance by the Commonwealth:

(a)under which public money is to be paid to a recipient other than the Commonwealth; and

(b)which is intended to assist the recipient achieve its goals; and

(c)which is intended to promote one or more of the Australian Government’s policy objectives; and

(d)under which the recipient is required to act in accordance with any terms or conditions specified in the arrangement.

The CGGs apply to all arrangements defined in Regulation 3A. Regulation 3A also exempts certain arrangements from the definition of a grant, and therefore from the CGGs, including procurements, gifts, tax concessions, loans, investments, certain intergovernmental payments and international official development assistance. Notional payments between FMA agencies, within the meaning of section 6 of the FMA Act, are not grants for the purposes of Regulation 3A.

official means a person who is in an agency or is part of an agency (see the FMAAct, section5).

proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth (see the FMAAct, section 44).While the FMA Act and Regulations do not define the terms efficient, effective, economical and ethical, it is useful to note that the Australian National Audit Office (ANAO) defines:

-efficiency as maximising the ratio of outputs to inputs;

-effectiveness as the extent to which intended outcomes were achieved; and

-economy as minimising cost.

public money means:

a)money in the custody or under the control of the Commonwealth;or

b)money in the custody or under the control of any person acting for or on behalf of the Commonwealth in respect of the custody or control of the money;

including such money that is held on trust for, or otherwise for the benefit of, a person other than the Commonwealth(see the FMA Act, section 5).

Public money includes Australian currency, bankable foreign currency and cheques in any currency. Public money can be appropriated by Parliament and is raised by or on behalf of the Commonwealth, through taxes, borrowings, loan repayments, rebates, levies, fees and othermeans. Money held on trust and money found on Commonwealth premises is also public money.

The FMA Act andRegulations apply to all money held or controlled by FMA Act agencies, irrespective of whether the money is provided through the Federal Budget, a special appropriationor raised by the agency, such as through cost recovery.

spending proposal means a proposal that could lead to entering into an arrangement (see Regulation 3). The definition is intended to make clear that a spending proposal is distinct from, and precedes, an arrangement(such as a contract or agreement) that may flow from the approved spending proposal. Spending proposals can also involve notional payments within and between agencies, which should be treated as real payments of public money(see the FMA Act, section 6).

Special Public Money is defined as public money that is not held on behalf of the Commonwealth or for the use or benefit of the Commonwealth.Money held by the Commonwealth on trust for another person is one example of special public money(see the FMAAct, section 16). However, unless the Finance Minister has issued a special instruction under section 16 of the FMAAct in relation to the special public money, the special public money attracts the same legal obligations as public money.

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Part 2 – Key legal requirements - commentary

Part 2Key legal requirements - commentary

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Part 2.1 – Committing to spend public money

2.1Committing to spend public money

Key steps:

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Department of Finance and Deregulation

Part 2.1.1 – Section 44

2.1.1 Section 44 - Promoting the proper use of Commonwealth resources

Commentary

  1. Part 7 of the FMAAct sets out the special responsibilities of agency Chief Executives, including the requirement, in section 44, that a Chief Executive must manage the affairs of his or her agency in a way that promotes the ‘proper use’ of the Commonwealth resources for which the Chief Executive is responsible.
  2. Proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth. Proper use was previously defined as ‘efficient, effective and ethical use that is not inconsistent with the policies of the Commonwealth’.
  3. Section 44 is an overarching requirement applying to all aspects of an agency’s resource management, including the management of ‘public money’ and ‘public property’, the administration of programs, the provision of grants, and procurement.
  4. One way Chief Executives discharge their responsibility under section 44 is by ensuring that their agencies have appropriate internal controls and guidance in place, such as Chief Executive’s Instructions (CEIs) and operational guidelines.
  5. The FMA Act does not define the terms ‘efficient’, ‘effective’ or ‘economical’ for the purposes of section44 (and Regulation 9). However, as a starting point, it would be appropriate to have regard to the following when considering the question of proper use:

-efficiency generally relates to maximising the ratio of outputs to inputs;

-effectiveness generally relates to the extent to which intended outcomes or results are achieved; and

-economy generally relates to minimising cost. This is explained in more detail below at paragraph 6.

(Refer also to Part 1.2 - Key concepts).

  1. Section 44 establishes a positive and personal obligation on every agency Chief Executive to manage the affairs of their agency in a way that promotes the proper use of Commonwealth resources.

-The Financial Framework Legislation Amendment Act 2010 added the word ‘economical’ to the definition of proper use of Commonwealth resources under section 44. This took effect on 1 March 2011.

-As stated above,the FMA Act does not define the terms efficient and effective for the purposes of section 44. These terms take their ordinary meaning.The concepts of efficient and effective already encompass the concept of economical. The addition of the term economical in the definition of proper use is intended to emphasise the requirement toavoid waste and increase the focus on the level of resources that the Commonwealth applies to achieve outcomes.

  1. Chief Executives are responsible for the management of their agencies and they are required to do so incompliance with the law and in the context of the Australian Government’s policy framework. This is reflected in sections 44(2) and 44(3). Key legal and policy requirements include, but are not limited to:

-Ministerial Guidelines authorised by section 64 of the FMAAct (including the Commonwealth Grant Guidelines (see Regulation 7A), Commonwealth Procurement Guidelines (see Regulation 7) and Fraud Control Guidelines (see Regulation 16A));

-applicable legislationof the Commonwealth, including requirements relating to privacy,anti-discrimination,freedom of information,occupational health and safety;

-applicable policies of the Commonwealth, including requirements regarding government advertising, cost-recovery, competitive neutrality, foreign exchange, property management guidelines and contingent liabilities; and

-the guidelines applying to particular program activities, such as grant program guidelines.

  1. In relation to procurement, a useful starting resource to find relevant policies is the list that appears in Financial Management Guidance No.10: Guidance on Complying with Policies of the Commonwealth in Procurement.This is available on the Finance website at
  2. The reference to policies of the Commonwealth in section 44(3) does not reduce the authority or decision-making alibility of independent statutory office holders, whose position has been set out in legislation, if they are makinga decision that is an integral part of their statutory function. This is becausepolicy,where it is not entrenched in legislation, is subservient to the law.
  3. The note to section 44 states that a Chief Executive ‘has the power to enter into contracts, on behalf of the Commonwealth, in relation to the affairs of the Agency’. The note recognises that Chief Executives can exercise the executive power of the Commonwealth generally, to the extent that it relates to the affairs of their agency. This capacity mirrors that of Ministers, in whom executive power of the Commonwealth vests, as well as the executive power of the Governor-General (see sections 61 and 64 of the Constitution).The executive power of the Commonwealth is used where the Commonwealth entersinto ‘arrangements’, including contracts, leases and licences (except where this is done under the authority of legislation).
  4. The reference in the note to a Chief Executive being able to enter contracts ‘in relation to the affairs of the Agency’ is to be read in broad terms. In particular, the Government will generally expect agencies to work cooperatively in a range of areas, including the implementation of whole-of-government policies. For example,this might include one agency entering into a contract on behalf of the Commonwealth, where the services can be accessed by other agencies or governmental bodies, such as occurs currently, by the Department of Finance and Deregulation in relation to the leasing of vehicles for Commonwealth agencies. There may also be occasions when agencies decide cooperatively to share arrangements, such as through a request for tender that allows the inclusion of other agencies.
  5. Similarly, a Department of State may need to work closely with other agencies in the same portfolio. This is particularly the case in relation to formation, dissolution or change processes for portfolio agencies or bodies generally, where Departments may legitimately obtain goods or services on behalf, or in anticipation, of the requirements of a portfolio body.
  6. Moreover, some FMA Act agencies will be required, by their nature, to deal with contracts and payments on behalf of other agencies. In these cases, arrangements might also be established to reimburse the agency bearing the initial costs of such contracts.
  7. The note to section 44 also recognises that a Chief Executive may delegate theirpower to enter contracts on behalf of the Commonwealth to officials in accordance with section53 of the FMAAct. Delegations are an important way for Chief Executives to pass ontheir power to enter into contracts to officials within their agency or to relevant officials of other agencies, if desired.

-Where agencies are entering into a cross-agency arrangement, a Chief Executive (or their delegate) may instead agree, preferably in writing,to allow another Chief Executive (or delegate) to commit appropriation/s for which they are responsible.This means that the Chief Executive of the lead agency could rely on their own Regulation9, Regulation10 and section 44 powers to approve a ‘spending proposal’,and enter into a commitment of public money in relation tothe other agency’s appropriations. Any commitment would need to be consistent with the purposes of the relevant appropriation of the funding agency.