Australia: Public Governance, Performance and Accountability Act 2013 in a nutshell

In the final months of Parliament before the 2013 federal election, the former Government introduced a major revision of the financial management regulatory framework of the Commonwealth in the form of the Public Governance, Performance and Accountability Act 2013 (the Act).

The Act is due to commence on 1 July 2014, if not proclaimed sooner, and replaces the Financial Management and Accountability Act 1997 (FMA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act).

What are the major changes?

The key changes made by the Act include:

  • consolidating the FMA and CAC Acts
  • replacing the old categories of Commonwealth bodies with a new category called a "Commonwealth entity"
  • creating new duties for the governing bodies of the Commonwealth entities ("accountable authorities")
  • establishing a core set of obligations for all Australian Public Service (APS) employees, and
  • creating a new set of performance and reporting requirements on accountable authorities and Ministers.

What is the purpose of the changes?

The intent of the Act is to create a "coherent and consistent approach to governance, performance and accountability within the Commonwealth". It creates a single Act for different types of entities, irrespective of their different legal status.

The Act provides the Finance Minister with an enhanced framework to oversee and exercise greater control over the governance and performance of all Commonwealth entities.

What is the significance of the changes?

At this stage, the changes are unlikely to have a major effect on the day-to-day operations of most Commonwealth bodies. However, the Act does establish a framework for the Finance Minister to implement any changes in the future more easily than under the existing regime.

Who is covered?

The Act abolishes the previous distinction between "FMA agencies" and "CAC bodies", which was based on the way they held funds. Instead, a new category of Commonwealth body is created called a "Commonwealth entity".

A Commonwealth entity includes:

  • a department of state
  • a parliamentary department
  • a listed entity, or
  • a body corporate established by a law of the Commonwealth.

There are two types of Commonwealth entities:

  • a corporate Commonwealth entity (formerly CAC authority)—a body corporate, which has a separate legal entity from the Commonwealth and can act in its own right in exercising certain legal rights such as entering contracts and owning property, and
  • a non-corporate Commonwealth entity—has no separate legal existence from the Commonwealth.

Not included within this term are "Commonwealth companies", which are companies established and regulated under the Corporations Act 2001 that are controlled by the Commonwealth. The Act imposes some performance and reporting obligations on Commonwealth companies; but, Commonwealth companies are not subject to the Commonwealth entity regulatory regime.

What impact will the Act have for APS employees?

An individual who is in, or forms part of, a Commonwealth entity is an "official". This term will cover APS employees but does not include a Minister, judge, consultant or independent contractor, an individual or class of individuals prescribed by the rules.

The Act imposes new "directors type" duties on officials, including:

  • Duty of care and diligence—this duty is similar to the equivalent duty in the APS Code of Conduct; however, the Act is more detailed in what is required. There is also an equivalent duty for directors and senior managers in the CAC Act, but this has now been extended to all APS employees.
  • Duty to act in good faith and for proper purpose—there is no equivalent express duty under the APS Code of Conduct and although there is an equivalent duty for directors and senior managers in the CAC Act, this has now been extended to all APS employees. "Proper purpose" is not defined but the Explanatory Memorandum states that this requires officials to act in connection with the functions of the entity.
  • Duty in relation to the use of position—officials must not improperly use their position to gain an advantage for themselves or other person, or to cause detriment to the entity, the Commonwealth or any other persons. This duty is similar to the equivalent duty in the APS Code of Conduct; and there is an equivalent duty for directors and senior managers in the CAC Act, but this has now been extended to all APS employees.
  • Duty in relation to use of information—an official must not improperly use information obtained because of their position to gain an advantage for themselves or other person, or to cause detriment to the entity, the Commonwealth or any other person. This duty is similar to the equivalent duty in the APS Code of Conduct; and there is an equivalent duty for directors and senior managers in the CAC Act, but this has now been extended to all APS employees.
  • Duty to disclose interests—an official who has a material personal interest that relates to the affairs of the entity must disclose details of the interest. Rules may prescribe how and when this should be disclosed. This duty is similar to the equivalent duty in the APS Code of Conduct; and there is an equivalent duty for directors and senior managers in the CAC Act, but this has now been extended to all APS employees.

For the majority of APS employees, the Act deems the breach of these duties as a breach of the APS Code of Conduct, which gives rise to the sanctions under the Public Service Act.

For APS employees who are members of the accountable authority of a corporate Commonwealth entity, the breach of these duties may result in the person's appointment being terminated.

What is an accountable authority?

The accountable authority is the governing body of the Commonwealth entity. Depending on the nature of the Commonwealth entity, the people who are deemed to be the accountable authority include:

  • secretaries of departments, and
  • board members of a corporate Commonwealth entity.

What impact will the Act have on accountable authorities?

Under the Act, accountable authorities have fiduciary obligations that are aligned to directors' duties under the Corporations Act.

They have a duty to govern an entity in a way that promotes:

  • the proper use and management of public resources for which they are responsible
  • the achievement of the purposes of the entity ("purpose" is defined as the objectives, functions or role of the entity or company), and
  • the financial sustainability of the entity.

This is not a new duty, but it has been extended to require a whole of government approach to resource management. This involves considering the effect of decisions on all public resources across the APS, rather than just those for which they are responsible.

There are also a range of new duties, including duties to:

  • establish and maintain an appropriate system of:
    • risk oversight and management for the entity, and
    • internal control for the entity including measures directed at ensuring officials comply with the finance law
  • encourage officials to cooperate with others to achieve common objectives
  • consider, when imposing requirements on others regarding the use of or management of public resources:
    • the risks associated with use or management, and
    • the effects of imposing those requirements
  • keep their responsible Minister and the Finance Minister informed of prescribed matters, and
  • prepare a corporate plan, budget estimates, and comply with the prescribed performance and financial reporting requirements.

The obligation to inform the Minister of matters is also more prescriptive than that which was previously imposed under the FMA Act. However, in practice, there is unlikely to be much difference in reporting to the Minister.

Are there any changes for Ministers?

There is a new duty on Ministers (rather than officials) not to approve proposed expenditure of relevant money unless satisfied that it would be a proper use of Commonwealth resources. This duty has been elevated from the regulations to the Act and it has been suggested that this is the mechanism to overcome the constitutional problems around the legislative authority for Commonwealth spending arising out of the Pape and Williams decisions.

There are also an expanded set of matters that the Minister is required to inform Parliament about.

Other matters

Other areas that are covered by the Act include:

  • use and management of public resources
  • appropriations
  • establishing companies, subsidiaries and new corporate Commonwealth entities, and
  • rules and delegations.

What you need to do now

At this stage, we do not expect that the Department of Finance will make wholesale changes to its existing policy that fit within the new framework. However, the Act does make a number of changes to the financial management regulatory framework, and to the extent that any policies or procedures do not align with the new framework they will require changes.

Accordingly, agencies need to monitor the changes and the policies to implement them, currently being released by the Department of Finance through the Draft Rules, and ensure that their current policies and procedures comply with the new requirements. Further, the changes will also require agencies to provide training to their staff so that they are aware of, and comply with, the new requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Ashley Cahif
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