Australia: With freedom comes responsibility - Government spending under the new PGPA rules

Government Matters

Government agencies will need to consider whether internal processes and delegations for procurement and grants need to be revised as a result of new financial management and accountability legislation and rules.

As explained in the last edition of Government Matters, the Public Governance, Performance and Accountability Act 2013 (PGPA Act) replaces the Financial Management and Accountability Act 1997 (FMA Act) and the Commonwealth Authorities and Companies Act 1997 (CAC Act). It establishes a core set of obligations for all Commonwealth officials and governing bodies of agencies (accountable authorities).

The move away from the one-size-fits-all approach under the FMA Act will require agencies to understand and engage with relevant risks. The Department of Finance notes "the emphasis of the new system is on encouraging prudent behaviour through the duties of accountable authorities and officials, not on overly prescriptive regulatory and compliance requirements".

The upshot of this is that Government departments and agencies, accountable authorities and officials have a greater degree of flexibility in how they discharge their PGPA Act obligations. However, as has been said, with freedom comes responsibility.

Commitment of public monies

Of most importance to the day-to-day operation of agencies is the change to the requirements around the commitment of public money that were contained in rules 8-12 of Financial Management and Accountability Regulations 1997 (FMAR). Those regulations are now replaced by a mixture of legislation, rules and agency policy.

Regulations 7-12 of FMAR (particularly regulations 9 and 12) – in relation to commitment of public monies and resources – are now dealt with under the PGPA Act and in one draft rule: 18 – Approving commitments of relevant money. There is also no equivalent of FMAR regulation 10 regarding arrangements beyond appropriations.

Under the rule there is no specific obligation on an official approving the expenditure of public money to be satisfied that the proposed commitment would be a "proper use" of relevant money. Instead, rule 18 simply requires that the official records the approval in writing as soon as practicable after giving it, and complies with any written requirement, including spending limits, specified by the accountable authority in instructions or the instrument that delegates to the official.

The obligation to promote the proper use of public money is placed on the accountable authority by s 15 of the PGPA Act (as it was under s 44 of the FMA Act). However, it requires the accountable authority not only to promote the "financial sustainability of the entity" but also to consider the effect of decisions on public resources generally. This is potentially a much broader duty, requiring consideration of whole of government (rather than agency specific) impacts, than has previously existed under the FMA Act regime.

Section 16 of the PGPA Act requires an accountable authority to establish and maintain an appropriate system of risk oversight and management and an appropriate system of internal control. Those internal controls will deal with issues like approval processes for the spending of relevant money by officials and ensuring compliance with the finance law. In practice, an accountable authority will need to rely on delegation instrument instructions to flow down the "proper use" and risk management requirements under ss15 and 16 of the PGPA Act to those officials exercising delegations.

In exercising an expenditure approval delegation, an official must also comply with their general duties under ss 25 to 29 of the PGPA Act. These include a duty of care and diligence, a duty to act in good faith and for a proper purpose, a duty regarding use of position, a duty regarding use of information, and a duty to disclose interests.

While guidance issued by Department of Finance indicates that these duties generally align with pre-existing obligations of officials under the Public Service Act 1999, this remains an issue to watch. Particularly since Department of Finance guidance on this point draws upon the equivalent duties of directors under the Corporations Act 2001 and common law principles, to illustrate the intended scope of certain duties placed on officials.

For example, in determining the standard required by s 25 of the PGPA Act to exercise duties with the "degree of care and diligence that a reasonable person would exercise", officials are advised to have regard to the common law:

"In common law, a reasonable person will weigh all the following factors before acting:
  • the foreseeable risk of harm their actions create versus the utility of the actions
  • the extent of the risk so created
  • the likelihood that the risk will actually cause harm to others
  • any alternatives of lesser risk, and the costs of those alternatives."

The guidance underscores the importance of officials having a full understanding of the relevant risks for the agency and of the proposed transaction before taking action. Depending on the nature of business that each specific agency conducts, this could be a relatively tough burden.

Further changes

The new rule 18 is dependent on further amendments to the PGPA Act. A "Consequential and Transitional Bill" was introduced in the Winter sittings (which started in May) to "align the statute book with the new financial and performance framework and to facilitate the transition from the FMA Act and the CAC Act to the PGPA Act".


Each Government body will need to carefully consider whether existing internal processes and controls – particularly regarding spending decisions – are appropriate for its operations and the particular risks it faces. In addition, individual officials will need to take greater care to ensure that they understand their individual duties under the PGPA Act, as well as what those duties may require in the context of each individual transaction they undertake. For officials, compliance with PGPA Act duties is not simply a matter of confirming adherence to established rules – it will require the exercise of judgment, acumen and prudence commensurate with the risks and complexity of the role of the individual official.

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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Marcus Priest
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