Introduction to the Financial Framework

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Introduction to the Financial Framework






FINANCIAL MANAGEMENT AND BUDGET TRAINING PROGRAM
PART 1 | JUNE 2013


2

The Department of Finance and Deregulation (Finance) has developed this
presentation as part of the Financial Management and Budget (FMB) training program.


More information about how to access and use the FMB training products, including
the associated participant guide, is available at:

www.finance.gov.au/financial
-
framework/training/fmb
-
program.html


Feedback or enquiries about any aspects of this presentation may be directed to:

Training Team

Resource Management Branch

Governance and Resource Management Group

Department of Finance and Deregulation

Email:
training.team@finance.gov.au


Enquiries about this presentation

3

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Copyright (and any other intellectual property rights, if any) in this publication
is
owned by the Commonwealth of Australia.






With the exception of the Commonwealth Coat of Arms and the Department of Finance and Deregulation logo, all material
presented in this publication is provided under a
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Except where otherwise noted, any reference to, use or distribution of all or part of this publication must include the follo
win
g
attribution:
© Commonwealth of Australia 2013.


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-
arms/
.


Copyright Notice

4

The FMB training program comprises three introductory modules
that cover the key elements of the budget and financial frameworks.



Part 1


Introduction to the Financial Framework


Part 2


The Budget Process and New Policy Proposals


Part 3


Appropriations, Public Money and Financial Reporting.


Financial Management and Budget (FMB)

Training Program

5

The financial framework

Part 1


Introduction to
the Financial Framework



-
Australian system of
government

-
Financial framework

-
Governance
arrangements

-
Outcomes, programs
and performance

-
Risk management

Part 2


The Budget
Process and New Policy
Proposals



-
Budget framework

-
Budget process

-
Budget estimates

-
New policy proposals

Part 3
-

Appropriations,
Public Money and
Financial Reporting


-
Appropriations

-
Public money

-
Financial reporting

How do you interact with the financial
framework?

Introduction

6

Navigating the financial framework

Introduction

Part 1


Introduction to
the Financial Framework



-
Australian system of
government

-
Financial framework

-
Governance
arrangements

-
Outcomes, programs
and performance

-
Risk management

Part 2


The Budget
Process and New Policy
Proposals


-
Budget framework

-
Budget process

-
Budget estimates

-
New policy proposals

Part 3
-

Appropriations,
Public Money and
Financial Reporting


-
Appropriations

-
Public money

-
Financial reporting

7

The Australian Government’s financial
framework

8

Key elements of the financial framework


The
financial management framework

sets out the governance
and financial management responsibilities of Australian
Government entities, and is designed to help staff manage public
resources in a responsible, accountable and transparent way.



The
budget framework
is designed to help the government to
make decisions about how public money will be allocated to its
strategic priorities, and to keep the parliament and the public
informed about the government’s decisions.


The Australian Government’s financial framework

9

The Australian Government’s financial framework

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

Federal Financial Relations Act 2009

Public Service Act 1999



and


other employment arrangements




Corporations Act 2001

Auditor
-
General Act 1997


Public Accounts and Audit Act 1951


Governs the establishment and operation of, and employment in, the Australian Public Service.



For example, under the
Australian Prudential Regulation Authority Act 1998
.

Foundations of the

financial framework

Administrative Arrangements Order

10

The Constitution

The Australian Government’s financial framework

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

11

The Australian system of
government

The Australian Government’s financial framework


The Australian Constitution

Legislative

Parliament makes
the laws

Executive

The Executive
administers the laws
made by the
Parliament

Judiciary

The Courts interpret
the law

Executive
selected from
and must have
the confidence
of the
Parliament

Executive
accountable to
the Parliament

Judiciary
appointed
by the
Executive

Judges may be removed by the vote of both Houses of
Parliament on the grounds of proved misbehaviour or incapacity

Prime Minister

Ministers and
parliamentary
secretaries

Government
departments and
public servants


House of
Representatives

Senate

(The Opposition)

High Court of
Australia

Federal Court

Family Court

Federal Magistrates
service

Executive
accountable to
the Parliament

12

The Consolidated Revenue Fund

The Australian Government’s financial framework

Consolidated
Revenue Fund

Inflows


‘All revenues or moneys
raised or received by the
Executive Government of
the Commonwealth’

Constitution


s. 81

Outflows


‘Money to be appropriated
by law’

Constitution



s. 83


‘For the purpose of the
Commonwealth’

Constitution


s. 81


Must have relevant
legislative authority

13

The Australian Government’s financial framework

Appropriations

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

14

The Australian Government’s financial framework

Charter of Budget Honesty

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

15

The Australian Government’s financial framework

FMA Act and CAC Act

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

16

Official Public
Account

CAC Act body
bank accounts

FMA Act
agency bank
accounts

16

Consolidated Revenue Fund

The Australian Government’s financial framework

17

The Australian Government’s financial framework

Particular Acts

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

Federal Financial Relations Act 2009

Public Service Act 1999



and


other employment arrangements




Corporations Act 2001

Auditor
-
General Act 1997


Public Accounts and Audit Act 1951


Governs the establishment and operation of, and employment in, the Australian Public Service.



For example, under the
Australian Prudential Regulation Authority Act 1998
.

18

Federal financial relations

funding framework

No

conditions

Must be
spent in
sector

Must be spent
in accordance
with
agreement

The Australian Government’s financial framework


National

Healthcare
SPP /

National
health

reform
funding

National
Schools SPP

National
Disability

Services SPP

National
Affordable

Housing SPP

National Skills
and Workforce

Development
SPP

National

partnership

payments

Financial

assistance
grants to local
government

Other general
revenue
assistance

GST payments

19

The Australian Government’s financial framework


Other legislation and guidance

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

Federal Financial Relations Act 2009

Public Service Act 1999



and


other employment arrangements




Corporations Act 2001

Auditor
-
General Act 1997


Public Accounts and Audit Act 1951


Governs the establishment and operation of, and employment in, the Australian Public Service.



For example, under the
Australian Prudential Regulation Authority Act 1998
.

Building blocks of implementation

Source: Adapted from ANAO

Policy
development

Governance

Risk
management

Planning for
implementation

Procurement
and grants

Stakeholder
management

Resources

Communication

Monitoring
and review

20

Activity

The Australian Government’s financial framework

21

Governance arrangements

22

AAO


portfolio structures

Agriculture, Fisheries and Forestry

Attorney
-
Generals

Broadband, Communications and the Digital Economy

Defence

Education, Employment and Workplace Relations

Families, Housing, Community Services and Indigenous Affairs

Finance and Deregulation

Foreign Affairs and Trade

Health and Ageing

Human Services

Immigration and Citizenship

Industry, Innovation, Climate Change, Science, Research and Tertiary
Education

Infrastructure and Transport

Regional Australia, Local Government, Arts and Sport

Resources, Energy and Tourism

Sustainability, Environment, Water, Population and Communities

Prime Minister and Cabinet

Treasury

Veterans’ Affairs

Governance arrangements

23

Governance arrangements

Financial
framework
legislation

Type of entity

Employment
framework

Budget
classification

Sector
classification

Legal status

FMA Act

CAC Act

Body corporate

General
Government
Sector

Department of
State

Department of
the Parliament

Prescribed
agency

Statutory
agency under
PS Act

Executive
agency under
PS Act

Staffed through
department or
agency

Staffed under
own Act

Material

Non
-
material

Body corporate

Commonwealth
of Australia

Statutory
agency under
PS Act

Staffed under
own Act or
jurisdictional
legislation

Material

Non
-
material

General
Government
Sector

Public financial
corporation

Public

non
-
financial
corporation

Unclassified

Commonwealth
authority

Commonwealth
company

Characteristics of entities covered by the FMA and CAC Acts

24

Governance arrangements

Financial
framework
legislation

Body Type

Employment
Framework

Budget
Classification

Sectoral
Classification

Legal Status

FMA Act

CAC Act

Body Corporate

General
Government
Sector

Department of
State

Department of
the Parliament

Prescribed
Agency

Statutory
Agency under
PS Act

Executive
Agency under
PS Act

Staffed through
Department or
Agency

Staffed under
own Act

Material

Non
-
material

Body Corporate

Commonwealth
of Australia

Statutory
Agency under
PS Act

Staffed under
own Act

Material

Non
-
material

General
Government
Sector

Public Financial
Corporation

Public

Non
-
financial
Corporation

Unclassified

Commonwealth
Authority

Statutory
Marketing
Authority

Government
Business
Enterprise

Commonwealth
Company

Government
Business
Enterprise

Key differences between FMA and CAC entities


Financially part of the Commonwealth


Typically legally part of the Commonwealth


Manage ‘public money’


Report to a chief executive



Legally separate from the Commonwealth


Handle money in their own right


Governed by a board of directors


25

Governance arrangements

Legislative and employment frameworks

Financial
framework
legislation

Type of entity

Employment
framework

Budget
Classification

Sector
Classification

Legal Status

FMA Act

CAC Act

Body Corporate

General
Government
Sector

Department of
State

Department of
the Parliament

Prescribed
agency

Statutory
agency under
PS Act

Executive
agency under
PS Act

Staffed through
department or
agency

Staffed under
own Act

Material

Non
-
material

Body Corporate

Commonwealth
of Australia

Statutory
agency under
PS Act

Staffed under
own Act or
jurisdictional
legislation

Material

Non
-
material

General
Government
Sector

Public Financial
Corporation

Public

Non
-
financial
Corporation

Unclassified

Commonwealth
authority

Commonwealth
company

Established through:


Constitution


Parliamentary Service Act


the Public Service Act


their own enabling legislation

Staffed under or by:


Public Service Act


Parliamentary Service Act


a department or agency


their own enabling legislation

Established through:


their own enabling legislation


registration under the Corporations Act

Staffed under or by:


Public Service Act (authority)


their own enabling legislation (authority)


State or territory frameworks (company)


26

Governance arrangements

Material entities

Financial
framework
legislation

Type of entity

Employment
framework

Budget
classification

Sector
Classification

Legal Status

FMA Act

CAC Act

Body Corporate

General
Government
Sector

Department of
State

Department of
the Parliament

Prescribed
agency

Statutory
agency under
PS Act

Executive
agency under
PS Act

Staffed through
department or
agency

Staffed under
own Act

Material

Non
-
material

Body Corporate

Commonwealth
of Australia

Statutory
agency under
PS Act

Staffed under
own Act or
jurisdictional
legislation

Material

Non
-
material

General
Government
Sector

Public Financial
Corporation

Public

Non
-
financial
Corporation

Unclassified

Commonwealth
authority

Commonwealth
company

Material entities comprise 99% of
revenues, expenses, assets and
liabilities.


27

Governance arrangements

Sector classifications

Financial
framework
legislation

Type of entity

Employment
framework

Budget
classification

Sector
classification

Legal Status

FMA Act

CAC Act

Body Corporate

General
Government
Sector

Department of
State

Department of
the Parliament

Prescribed
agency

Statutory
agency under
PS Act

Executive
agency under
PS Act

Staffed through
department or
agency

Staffed under
own Act

Material

Non
-
material

Body Corporate

Commonwealth
of Australia

Statutory
agency under
PS Act

Staffed under
own Act or
jurisdictional
legislation

Material

Non
-
material

General
Government
Sector

Public financial
corporation

Public

non
-
financial
corporation

Unclassified

Commonwealth
authority

Commonwealth
company

Total public sector

Public financial
corporations

Total non
-
financial

public sector

General government
sector

Public non
-
financial
corporation

Includes Reserve
Bank of Australia and
other borrowing
authorities

Government departments
and agencies that
provide non
-
market
public services and are
funded mainly through
taxes

Provide goods and
services to consumers
on a commercial
basis, are funded
largely by the sale of
these goods and
services and are
generally legally
distinguishable from
the governments that
own them

General
Government
Sector

General
Government
Sector

General Government
Sector

28

Governance arrangements

Legal status

Financial
framework
legislation

Type of entity

Employment
framework

Budget
classification

Sector
classification

Legal status

FMA Act

CAC Act

Body corporate

General
Government
Sector

Department of
State

Department of
the Parliament

Prescribed
agency

Statutory
agency under
PS Act

Executive
agency under
PS Act

Staffed through
department or
agency

Staffed under
own Act

Material

Non
-
material

Body corporate

Commonwealth
of Australia

Statutory
agency under
PS Act

Staffed under
own Act or
jurisdictional
legislation

Material

Non
-
material

General
Government
Sector

Public financial
corporation

Public

non
-
financial
corporation

Unclassified

Commonwealth
authority

Commonwealth
company

29

The Financial Management and Accountability Act
1997

Sets out the requirements to:


manage public resources efficiently, effectively, economically and
ethically


maintain proper accounts


maintain records of the receipt and expenditure of public money.



Governance arrangements

30

Financial management

framework hierarchy

Operational guidance

The Constitution

FMA Act and FMA Regulations

Commonwealth Procurement Rules,
Commonwealth Grant Guidelines and
Fraud Control Guidelines

Finance
Minister’s
Orders for
Financial
Reporting

Finance Minister’s
Determinations
and Special
Instructions

Chief Executive’s Instructions

Chief Executive’s (internal)
delegations

Financial

management policies

Finance Minister’s
delegations

Whole
-
of
-
government

financial management framework

Agency financial
management
framework

Governance arrangements

31

The Commonwealth Authorities and Companies
Act 1997

Sets out :


the reporting and audit obligations for directors of authorities


standards of conduct for officers of authorities


requirement to ensure that wholly
-
owned Commonwealth
companies keep ministers and parliament informed of their
activities.



Governance arrangements

32

CAC bodies


key features


Notify responsible minister of
proposed activities


Keep responsible minister and
Finance Minister informed


No power of direction


Comply with general policies of the
government


Estimates


Audit committees

Commonwealth authority

Commonwealth company

Provisions applying to both

Governance arrangements

CAC Act

Enabling
legislation

Corporations
Act

33

Factors influencing governance
arrangements

Governance arrangements


34

Activity

Governance arrangements

35




Outcomes, programs and performance

36

Outcomes, programs and performance

Outcomes, programs and performance



What does the government want to achieve?


(Outcomes)


What activities does government undertake to achieve this?



(Programs)


How is progress towards achieving these outcomes monitored?


(Performance)


37

Outcomes, programs and performance


Appropriations

Outcome statement

Deliverables

Reporting to parliament

Progress towards achieving outcomes is reported using
financial and non
-
financial performance information

Program


Administered

Program


Departmental

Program


Administered

Departmental

Program support

Program support

Program support

Reporting requirements

Legal source

Appropriations

38

Outcomes, programs and performance


Appropriations

Outcome statement

Deliverables

Reporting to parliament

Progress towards achieving outcomes is reported using
financial and non
-
financial performance information

Program


Administered

Program


Departmental

Program


Administered

Departmental

Program support

Program support

Program support

Reporting requirements

Legal source

Outcome statement

39

Outcomes, programs and performance


Appropriations

Outcome statement

Deliverables

Reporting to parliament

Progress towards achieving outcomes is reported using
financial and non
-
financial performance information

Program


Administered

Program


Departmental

Program


Administered

Departmental

Program support

Program support

Program support

Reporting requirements

Legal source

Programs and deliverables

40

Outcomes, programs and performance


Appropriations

Outcome statement

Deliverables

Reporting to parliament

Progress towards achieving outcomes is reported using
financial and non
-
financial performance information

Program


Administered

Program


Departmental

Program


Administered

Departmental

Program support

Program support

Program support

Reporting requirements

Legal source

Reporting

41

Role of performance information

Monitoring, reporting and evaluating performance information helps to:


support government decision
-
making in planning and allocating
resources across competing priorities


contribute to whole
-
of
-
government program and service delivery
improvements


improve the effectiveness and efficiency of government programs


provide early warning about emerging problems.



Outcomes, programs and performance


42

Generalised performance
management framework

Government


Portfolio Minister/s, Minister/s, Parliamentary Secretary


Legislative and regulatory framework

Outcomes and programs structure


Outcomes


Programs


Performance information

Business planning

Performance review and feedback

Corporate planning
and governance

Source: Adapted from Management Advisory Committee,
Performance Management in the APS: A Strategic Framework, 2001

Outcomes, programs and performance


43

Activity

Outcomes, programs and performance


44

Risk management

45

What is risk?

Risk management

Risk can be defined as:


‘the effect of uncertainty on objectives’ (ISO31000:2009)


‘the possibility of an event or activity impacting adversely on an
organisation, preventing it from achieving organisational
outcomes’ (Comcover Better Practice Guide).

46

What is risk management?

Risk management


Risk management comprises the activities and actions taken to
ensure that an organisation is conscious of the risks it faces, makes
informed decisions in managing these risks, and identifies and
harnesses potential opportunities.


The principles of sound risk management underpin the financial
management framework and should inform all financial decisions.


47

Risk management and the financial framework

Risk management

As well as just being sound business practice, risk management is
mentioned in:



the FMA Act and FMA Regulations


the Certificate of Compliance process


the CAC Act and CAC Orders.


48

Why is risk management important?

Risk management

Benefits of adopting a structured approach to managing risk include:



improved accountability


improved stakeholder relationships and confidence


the development of a learning culture


improved financial management and performance


better resource allocation


improved compliance outcomes


reduction in the potential for litigation.


49

Elements of risk management

Risk management

There are five key elements which underpin an effective framework
for managing risk within an agency:



risk management policy and objectives


accountability and responsibility


integration


review and evaluation


positive risk culture.



50

Responsibilities

Risk management


All staff must actively manage risks
that are part of their day
-
to
-
day work.



Chief Executive’s Instructions set out
specific responsibilities applying to
particular individuals (mainly senior
executives).

51

Recap

Constitution

Annual appropriation
Acts and special
appropriations

The Charter of Budget Honesty
Act 1998

Financial Management and Accountability
Act 1997; Commonwealth Authorities and
Companies Act 1997

Enabling legislation

Other specific legislation

Guidance material and training

Recap

Recap

52

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