Contents
Finance Circular
No. 2013/01
Grants, Procurements and other Financial Arrangements
Key points
This circular:
- provides guidance to Financial Management and Accountability Act 1997 (FMA Act) agencies on how to distinguishbetween grants, procurements and other financial arrangements
- is relevant for chief executives and agency staff responsible for financial arrangements
- reflects the 2013 update to the Commonwealth Grants Guidelines (CGGs)
- reflects changes to the definition of a ‘grant’
- replaces Finance Circular 2009/03 Grants and other common financial arrangements
- is available at
Contents
Foreword
Key concepts
Part 1 – Grants, Procurements and other Financial Arrangements
1.1Introduction
1.2Grants
1.2.1Arrangements not considered to be grants
1.3Procurement
1.3.1Arrangements not considered to be procurements
1.4Other financial arrangements
1.4.1Act of grace payments
1.4.2Compensation payments
1.4.3A payment to a person of a benefit or entitlement established by legislation
1.4.4Tax concessions or offsets
1.4.5Investments
1.4.6Loans
1.4.7Gifts of public property
Part 2 - Frequently asked questions
Attachment AFMA Regulation 3A
Attachment BFinancial Arrangements Matrix
Attachment CDecision Tree for Financial Arrangements
Finance Circular 2013/01
Page 1 of 17Department of Finance and Deregulation
Foreword
This circular provides guidance for agency staff on how to distinguish between grants, procurements and other common types of financial arrangements.
This circular reflects changes to the CGGs, which come into effect on 1 June 2013. Key changes include:
the need to determine the legal authority for the grant
amendments to the definition of a “grant” provided in Regulation 3A(1)of the Financial Management and Accountability Regulations 1997 (FMA Regulations)
amendments to FMA Regulation 3A(2) which provides information on the types of financial arrangements that are taken not to be grants.
An excerpt of FMA Regulation 3A isprovided at Attachment A.
Following the High Court decision in Williams v Commonwealth (2012), chief executives or agency staff need to determine whether there is a legal authority for the relevant arrangement. Agency staff should consult their agency chief financial officer unit and internal legal areas in making this determination. Agency staff should be aware that other changes have been made to the CGGs stemming from the outcome of the High Court decision.
This circular is provided in two parts. Part 1 provides guidance for agency staff on how to distinguish between grants, procurements and other common types of financial arrangements. Part 2contains frequentlyasked questions.
Also attached are two tools for agency staff: Attachment B provides a table summarising of the information contained in thiscircular; Attachment C contains a decision tree to assist agency staff to determine which type of financial arrangement they are using.
For questions relating to this finance circular, please contact the Grants Policy Team at .
Kerry Markoulli
Assistant Secretary
Resource Management Branch
Governance and Resource Management Group
May 2013
Finance Circular 2013/01
Page 1 of 17Department of Finance and Deregulation
Key concepts
Key concepts
agency meansa Department of State, (including persons allocated to the department by the FMA Regulations), a Parliamentary Department, or any agency prescribed under the FMA Regulations (see section 5of the FMA Act).
agency staff means officials of the agency. This includes persons who are not employed by the agency but perform a ‘financial task’ for the agency. A ‘financial task’ is defined in FMARegulation 3 as a task or procedure relating to the commitment, spending, management or control of public money.
authority means the legal authority (where express or implied) to exercise a power or function that can be given directly through legislation (e.g. chief executives’ powers under section 32B and section 44 of the FMA Act or other specific legislation) or through a delegation or authorisation.
Commonwealth Grant Guidelines(CGGs) are issued by the Minister for Finance and Deregulation (Finance Minister) under section 64 of the FMA Act and FMA Regulation 7A. TheCGGs establish the overarching Commonwealth grants policy framework within which agencies develop their own specific grants administration practices. They also articulate the expectations for all FMA Act agencies in relation to grants administration. The CGGs split into two parts. Part 1 contains the mandatory requirements. Part 2 contains information on the seven principles of grants administration.
Commonwealth Procurement Rules (CPRs) are issued by the Finance Minister under section64 of the FMA Act and FMA Regulation 7. The CPRs establish the Government’s policy framework under which agencies govern and undertake their own procurement. The CPRs set down the rules for Australian Government procurement and articulate the requirements for agency staff performing duties in relation to procurement. The CPRs have two divisions. Division 1 rules apply to all procurements regardless of their value or whether an exemption applies to them. Division 2 rules apply to procurements valued at or above the relevant procurement threshold.
ordinary services and functions of government means spending related to the running costs of an agency, such as the payment of staff salaries or building rental. Generally, payments relating to the ordinary services and functions of government will come from departmental appropriations, however there can be situations where they are paid from administered appropriations. Similarly, some payments from departmental appropriations may cover matters that are not ordinary services and functions of government, and thus the arrangement needs to be authorised by Schedule 1AA of the FMA Regulationsor specific legislation.
proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth (see section 44 of theFMA Act).
public money means
a)money in the custody or under control of the Commonwealth; or
b)money in the custody or under 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 section 5 of the FMA Act).
public property means
a)property in the custody or under control of the Commonwealth; or
b)property in the custody or under control of any person acting for or on behalf of the Commonwealth in respect of the custody or control of the property;
including such property that is held on trust for, or otherwise for the benefit of, a person other than the Commonwealth (see section 5 of theFMA Act).
Finance Circular 2013/01
Page 1 of 17Department of Finance and Deregulation
Part 1 – Grants, Procurements and other Financial Arrangements
Part 1 – Grants, Procurements and other Financial Arrangements
1.1Introduction
1.This circular provides guidance oncommon forms of financial arrangements available to agency staff to achieve Australian Government policy objectives. To facilitate a particular outcome, agency staff may decide to use a specific financial arrangement or a combination of financial arrangements.
2.In determining which financial arrangement to use,agency staff should focus on the substantive purpose and characteristicsof the financial arrangement and document the reasons for usingthat particular financial arrangement. It is essential that agency staff apply the relevant framework (i.e. policy, processes and legal requirements) that establish the requirements different types of financial arrangements. It is also important for agency staff to confirm that existing arrangements are properly characterised, particularly following recent updates to the CPRs and CGGs.
3.Before entering into any arrangement that may commit public money, you must be satisfied that:
- you have authority to enter into the arrangement
- you have acted in accordance with the CPRs or CGGs, where relevant
- the spending proposal has been approved under FMA Regulation 9 and, if required, agreement obtained under FMA Regulation 10.
4.The authority to enter into, vary or administer an arrangement generally comes from legislation. The authority can come from section 32Bof the FMA Act, section44 of the FMA Act, or other specific legislation. Thisauthority is usually delegated to agency staff to enable them to enter into, vary or administer an arrangement.
5.Attachment B ‘Financial Arrangement Matrix’ and Attachment C‘Decision Tree for Financial Arrangements’ provide tools to assist agency staff to identify common financial arrangements and determine which arrangement to use.
6.Agency staff should contact the Department of Finance and Deregulation (Finance) if they are unsure of which financial arrangement best suits their activity or program.
1.2Grants
7.From 1 June 2013, FMA Regulation 3A(1)defines a grant as 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
(b)which is intended to assist the recipient achieve its goals
(c)which is intended to help address one or more of the Australian Government’s policy objectives
(d)under which the recipient may be required to act in accordance with specified terms or conditions.
8.Where an arrangement meets the definition of a grant, then theCGGsapply.[1] The CGGs can be found on the Finance website at:
9.A granting activity can take a variety of forms, including a payment made on a one-off or adhoc basis, payments made as a result of competitive assessment, or funding provided specified criteria are satisfied. Agencies should apply the requirements and the principles of CGGs according to the nature of the grant they are administering.
10.Most grants do not relate to the ordinary services and functions of governmentand require legislative authority in addition to an appropriation Act. The authority can be established in portfolio legislation or by regulation. Many grants are authorised by section 32B of the FMA Act and Schedule 1AA of the FMA Regulations. Agencies can contact Governance Branch at if you consider legislative authority may be necessary in the FMARegulations.
Gifts of public money
11.A gift of public money is a grant. The CGGs apply to gifts of public money. Like all payments of public money, agift of public money must be a ‘proper use’ of Commonwealth resources.
Benefit and entitlementpayments,which are not established by legislation
12.Where a benefit or entitlement payment is not established through legislation (other than section 32B of the FMA Act, section 44 of the FMA Act, or an appropriation Act) it should be treated as a grant and agency staff must comply with the CGGs.
Sponsorships
13.Sponsorships, which provide financial assistance to individuals or organisations, whether directly to a recipient or through a third party, will generally meet the definition of a grant. However, a sponsorship may amount to procurement where it is essentially acquiring a good or service,for example,purchasing advertising space.
Subsidies and rebates
14.Subsidies and rebates can involve a wide range of arrangements,such as tax concessions and entitlement payments. Subsidies and rebates which create an entitlement to financial assistance will generally meet the definition of a grant where they are not established by specific legislation. Where the authority to enter the arrangement comes from section 32B of the FMA Act and Schedule1AA of the FMA Regulationsthe arrangement will generally meet the definition a grant and the CGGs will apply to the arrangement.
1.2.1Arrangements not considered to be grants
15.There are some financial arrangements that would normally be included in the definition of a grant, but are not subject to the CGGsfor policy reasons. FMARegulation3A(2) provides that certain arrangements are excluded from the definition of a grant. SeeAttachment A for the full list of exclusions in FMA Regulation 3A(2).
16.Generally, these arrangements are excluded because, although they may meet the definition of a grant, they are subject to separate legislative or administrative arrangements. For example, payments of financial assistance to States under section 96 of the Australian Constitutionand payments made under the FederalFinancialRelationsAct2009 are governed by theInter-Governmental Agreement and therefore not subject to the FMA Regulations requirements applying to grants, including the CGGs.[2]
17.Similarly, Official Development Assistance (ODA), administered by AusAID, has its own reporting, evaluation and transparency requirements that agencies must meet.
18.Questions about the application of the CGGs should be directed to .
1.3Procurement
19.Procurement encompasses the whole process of procuring goods and services. It begins when a need has been identified and a decision has been made on the procurement requirement. Procurement continues through the processes of risk assessment, seeking and evaluating alternative solutions, the awarding of a contract, the delivery of and payment for the goods and services and, where relevant, the ongoing management of the contract and consideration of disposal of goods.
20.In addition to the acquisition of goods and services by an agency for its own use, procurement includes the acquisition of goods and services on behalf of another agency or a third party.
21.The CPRsare the core procurement policy framework and articulate the Government's expectations of FMA Act agencies and relevant Commonwealth Authorities and Companies Act 1997 bodies. The CPRs can be found on the Finance website at:
Memberships
22.Where the Commonwealth purchases a membership to a group, either for its own use, use by agency staff, or the use of a third party, this will most likely constitute procurement under the financial framework.
1.3.1Arrangements not considered to be procurements
23.There are some arrangements which are not considered to be procurements, despite exhibiting the characteristics of procurement. Under paragraph 2.9 of the CPRs, statutory appointments, appointments by ministers and the engagement of employees, amongst other things, are not considered to be procurements.
24.Questions about the application of the CPRs should be directed .
1.4Other financial arrangements
1.4.1Act of grace payments
25.The act of grace power under section 33 of the FMAAct allows the Finance Minister or delegate to authorise one-off and periodic payments to individuals or other bodies (such as companies), if he or she considers it appropriate because of special circumstances.[3]
1.4.2Compensationpayments
26.Compensation payments include payments intended to compensate individuals or groups for financial loss or other adverse consequences caused by a decision, action or omission by the Australian Government. It also includes discretionary compensation where the Australian Government is under no legal obligation to make a payment.
27.Examples of compensation payments include: payments made under the Scheme for Compensation for Detriment caused by Defective Administration (the CDDAScheme) and payments made under section 73 of the Public Service Act 1999.[4]
1.4.3A payment to a person of a benefit or entitlement established by legislation
28.An entitlement is a right to apply for, or claim, a benefit established by specific legislation(other thansection 32Bof the FMA Act, section44 of the FMA Act, or an appropriation Act). The entitlement creates an obligation on the Australian Government to provide the benefit if relevant criteria are satisfied and may or may not place obligations on recipients of entitlements.
29.Examples of entitlements that operate through specific legislationinclude: pension payments made through the Social Security (Administration Act) 1999; payments to veterans through the Veterans’ Entitlements Act 1986; and payments made under the Pharmaceutical Benefits Scheme and Repatriation Pharmaceutical Benefits Scheme.
1.4.4Tax concessions or offsets
30.The Australian Taxation Office (ATO)administers legislation governing taxation. Any agency implementing a financial arrangement that involves matters of taxation should consult with the ATO in the first instance.
1.4.5Investments
31.An investment is an arrangement that involves the purchase of an asset by the Commonwealth for the primary purpose of earning income or a profitable return.[5]
32.Investments are made under the authority of specific enabling legislation,such as the FutureFundAct 2006or section 39 of the FMA Act. However, as a general principle, public money administered by FMA Act agencies should not be invested by them, as cash and debt management is generally conducted at the whole-of-government level.
1.4.6Loans
33.A loan is an arrangement under which the Commonwealth advances a sum of public money to an external recipient with the recipient agreeing to repay that sum (with or without interest) on a future date or on demand.
34.Loans are made for a variety of reasons, including policy purposes and as a means of facilitating repayments to the Commonwealth. Unlike an investment, the primary purpose of a loan is not to earn a commercial rate of return or profit for the Commonwealth. While interest may be payable under a loan, it may not be at commercial rates.
35.An amount of money that is required to be repaid without interest or at a concessional rate of interest should generally be considered a concessional loan, rather than a grant. However, there may be cases where a concessional component of a loan could be considered a grant (for example, as part of a granting activity or grant program design). Agencies should consult with Finance if they are unsure whether the CGGs apply in particular circumstances.
36.Loan guarantees are neither loans nor grants. They are a contingent liability incurred by the Commonwealth. FMA Regulation 11 must be complied with before entering into a loan guarantee on behalf of the Commonwealth.
1.4.7Gifts of public property
37.A gift of public property involves the provision of public property to another party. Gifts of public property are governed by section 43 of the FMA Act and must be a ‘proper use’ of Commonwealth resources.
Finance Circular 2013/01
Page 1 of 17Department of Finance and Deregulation
Part 2 – Frequently Asked Questions
Part 2 - Frequently asked questions
Q1:Our program is called a grant but is a legislative program. Which framework should we apply?
What agency staff call a particular financial arrangement does not necessarily determinethe framework to apply. It is important that the substantive purpose of the financial arrangement is established and thenthe relevant framework is appliedaccordingly. If the arrangement meets the definition of a grant under FMARegulation3A(1), and is not included in the exceptions in FMARegulation 3A(2) (see Attachment A), then it is a grant for the purposes of the FMA Regulations and the CGGs apply.
It is also important for agency staff to confirm that existing arrangements are properly characterised following the update to the CGGs. The ‘Financial Arrangement Matrix’ at Attachment Band the ‘Decision Tree for Financial Arrangements’ at Attachment Cprovide further guidance to assist agency staff.
Q2:How can I tell if I am undertaking procurement or a granting activity?
It can sometimes be difficult to distinguish grants and procurements depending on the circumstances, particularly where procurement is on behalf of a third party. Often what differentiates a grant from a procurement is that a grant recipient is being assisted by the Commonwealth to achieve its own goals (consistent with Commonwealth goals), whereas in a procurement, the Commonwealth is obtaining goods and/or services that will assist the Commonwealth in achieving Commonwealth goals.