The Public Governance, Performance and Accountability Act 2013, passed on 29 June 2013 will, when it commences, (expected to be before 1 July 2014) consolidate the two financial management frameworks established for Commonwealth activities under the Financial Management and Accountability Act 1997 (FMA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act), into one piece of legislation. As well as the significant implications for the old FMA agencies and CAC bodies, organisations contracting with the Commonwealth will also need to keep an eye on issues that will affect them, particularly in the areas of procurement and grants.
The PGPA Act is a key part of the reforms proposed as a result of the Commonwealth Financial Accountability Review, which commenced in December 2010, and is aimed at reducing complexity, enhancing efficiency and clarifying accountability in the area. Under the Act, the distinction between 'FMA agencies' and 'CAC bodies' will no longer apply. Instead, there will be new categories and subcategories of Commonwealth bodies:
'Commonwealth entities' (section 10)
- 'corporate Commonwealth entities' (section 11(a))
- 'non-corporate Commonwealth entities' (section 11(b))
- 'Commonwealth companies' (section 89(1))
For greater clarity on what will change, we have mapped below the definition of agencies under the FMA Act and CAC Act against the new categories under the PGPA Act.
Click here to view table.
A Commonwealth Company under the CAC Act regime will continue to operate as a Commonwealth Company under the new PGPA regime.
Key elements of the Act
- Reduction in complexity (Chapter 2: Part 2-1 & 2-2 of the PGPA Act)
Consistency- a consistent approach to the governance, performance and accountability requirements for all Commonwealth entities.
Uniform duties- a uniform set of duties which will be applicable to all officials (a person who is in, or forms part of, the entity subject to exceptions) within Commonwealth entities. However, some duties will only apply to accountable authorities (a person or group of persons responsible for an entity's operation).
Simplification- elimination or modification of unnecessary regulation or duplication of requirements.
- Enhancing operations and efficiencies (Chapter 2: Part 2-3, 2-4 & 2-6 of the PGPA Act)
Greater emphasis on resource management- adoption of resource management practices which will reflect the cycle of planning, measuring, evaluating and reporting on the result of performance to Parliament, relevant Ministers and the public.
Facilitation of collaboration - a duty on accountable authorities to facilitate collaboration amongst Commonwealth entities, and with their partners (including States and Territories, private sectors and not-for-profit sectors) and to consider the effect of imposing compliance burdens on them.
Risk management - a duty on accountable authorities to implement a system of risk oversight and management within Commonwealth entities.
- Clarifying accountability requirements (Chapter 2: Part 2-3 & 2-7; Chapter 4: Part 4-1 of the PGPA Act)
Risk profile - the level of regulation under the PGPA Act imposed on a Commonwealth entity will be determined by the entity's own risk profile to be determined in accordance with the rules.
How will the Act work in practice?
Although the PGPA Act has been enacted, the substantive provisions of the Act will commence operation by proclamation made no later than 1 July 2014. In the meantime, a separate Bill with transitional and consequential amendments is being developed, with the aim of ensuring no gaps exist between the old and the new financial frameworks. As the PGPA Act establishes a new financial management framework for Commonwealth entities, a new set of rules will also need to be developed to provide guidance for Commonwealth entities.
Finance Minister's power to issue rules
Part 4-1 of the PGPA Act empowers the Finance Minister to issue detailed rules in specific areas which underpin the PGPA Act. Similar to the FMA and CAC Regulations, the function of the rules is to clarify the requirements of the primary legislation. Although the rules are yet to be made, the Act does prescribe that the Finance Minister may make rules in relation to:
- certain matters concerning the Commonwealth and Commonwealth entities (section 102);
- certain matters concerning the Commonwealth and non-corporate Commonwealth entities (section 103);
- modifications to the application of the PGPA Act in relation to certain Commonwealth entities (section 104); and
- other consolidated revenue fund money (section 105)
The Act is silent on whether the Minister may make rules in relation to Commonwealth companies. The Explanatory Memorandum to the PGPA states that the Corporations Act 2001 is the primary and main regulatory framework for Commonwealth companies. However, the rules can extend to some Commonwealth companies in some cases.
Commonwealth procurement under the PGPA Act
Under the FMA Act and CAC Act framework, all FMA agencies and relevant CAC bodies (listed in Schedule 1 to the CAC Regulations) are required to comply with the Commonwealth Procurement Rules. Although it is not clear at this stage whether the rules will expand or contract the scope of application in relation to Commonwealth procurement, section 102(c) of the Act states that the rules may make provisions for procurement in relation to 'the Commonwealth and Commonwealth entities'. This implies that under the new framework, corporate Commonwealth entities, non-corporate Commonwealth entities and the Commonwealth may all be subject to the new rules relating to procurement issued under the PGPA Act.
Grants administration under the PGPA Act
Under the FMA Act and CAC Act framework, only FMA agencies are required to comply with the Commonwealth Grants Guidelines. Section 102(c) of the PGPA Act allows the rules to be made for grants in relation to 'the Commonwealth and Commonwealth entities'. As Commonwealth entity is a broader category than FMA Agency, this implies that once the rules on grants commence operation, certain former CAC authorities may also become subject to the new grants rules under the new PGPA framework.
'Proper use and management' under the PGPA Act
Under the old FMA regime, both the Commonwealth Procurement Rules and the Grant Guidelines require compliance with section 44 of the FMA Act which deals with the proper use of Commonwealth resources. "Proper use" is defined to mean efficient, effective, economical and ethical use of Commonwealth resources that is not inconsistent with the policies of the Commonwealth.
Under the PGPA framework, the definition of proper only encompasses the efficient, effective, economical and ethical use of public resources, and no longer expressly prevents the use of resources in a manner inconsistent with Commonwealth policies. Although on the face of it this seems relaxed compared to the FMA regime, section 102(a) of the PGPA Act allows the rules to be made to promote the proper use and management of public resources, rendering it unclear at this stage whether this proper use and management obligation will be less or more onerous than the FMA regime.
'Commonwealth' replaced with 'public' in relation to resources
The notion of 'Commonwealth resources' under the FMA Act is replaced by the concept of 'public resources' under the PGPA Act. The notion of 'ownership' of money or property lies at the heart of the distinction between FMA agencies and CAC bodies. While CAC bodies have legal 'ownership' over their own operating funds and assets, FMA agencies are denied this legal 'ownership', with funds and assets remaining the property of the Commonwealth (thus 'Commonwealth resources'). Under the new PGPA framework, a single definition of 'public resources' is introduced, subjecting 'relevant money', 'relevant property' and 'appropriations' held by Commonwealth entities to an aligned set of obligations.
Implications for Commonwealth entities and Commonwealth Companies
If your entity is currently a Commonwealth authority established under the CAC Act, you will need to consider the implications of any new rules issued by the Finance Minister relating to procurement and grants to determine whether they apply to your entity once they are in operation. If any new rules do apply to your Commonwealth entity or Commonwealth Company, you will need to consider:
- updating internal guidance material relating to procurement and grants,
- conduct training for staff,
- the impact on approaches to market, and
- the impact on programs administered by your entity
Once the transitional and consequential Bill or any rules are released, we will publish an alert highlighting their implications and in particular in relation to procurement and grants.