Finance Circular

No. 2011/06

To all Departments and Commonwealth authorities and Commonwealth companies subject to the Commonwealth Authorities and Companies Act 1997 (CAC Act)

CAC Act compliance: Departmental responsibilities

Purpose

This Finance Circular, which was initially provided in draft form on the Finance website from November 2010,provides guidance to portfolio Departmentsassisting their portfolio Ministers to deal with compliance issues affecting Commonwealth authorities and wholly-owned Commonwealth companies (CAC Act bodies). Portfolio Departments can work collaboratively with the directorsof CAC Act bodies to help ensure CAC Act bodies have adequate arrangements in place to deal with compliance issues, including disputes arising in the compliance context.

Key Points

1.The directors of CAC Act bodies are subject to duties imposed by the CAC Act (for Commonwealth authorities) and the Corporations Act 2001(for whollyowned Commonwealth companies). These include the duty to act with care and diligence in the best interests of the CAC Act body.[1] Accordingly,directors should ensure that there is an adequate framework in place to identify and respond to suspected compliance breaches. Portfolio Departments, in assisting their Ministers,have a role in ensuring compliance management processes within the portfolio, are effective.[2]

2.Based on the arrangements agreed between Departments and CAC Act bodies, CACAct bodies should liaise with the portfolio Department regarding significant compliance issues when they are identified. To ensure seamless communication,Departments and CAC Act bodies should identify relevant personnel as points of contact in their organisation.

3.Departments and CAC Act bodies can contact the Department of Finance and Deregulation (Finance) for advice on CAC Act compliance issues.

4.In undertaking its role, the portfolio Departmentmay also wish to contact Finance about compliance issues when they need to seek advice onthe CAC Act, including those that might arise in consultation with theboardof relevant CAC Act bodiesorwhen the portfolio Minister wishes to make a formal request to the Finance Minister to commence civil penalty proceedingsagainst the director or employee of the CAC Act body responsible for a compliance breach, underSchedule 2 to the CAC Act.[3] The Finance Minister can enforce a civil penalty provision against directors and employees of Commonwealth authorities. Refer to clauses 1 to 6 of Schedule 2 to the CAC Act, which are at AttachmentA.

5.Portfolio Departments, in consultation with their relevant CAC bodies, should refer suspected criminal compliance issues to the Australian Federal Police (AFP). If you would like to report a crime to the Australian Federal Police please visit

6.For whollyowned Commonwealth companies, suspected civil and criminal compliance issues covered by the Corporations Act 2001 (Corporations Act) should be referred to the Australian Securities and Investments Commission (ASIC) in the first instance. If you would like to lodge a complaint about a company with ASIC, please visit

7.A flowchart providing a step by step guide to assist portfolio Departments and CACAct bodiesin addressing compliance issues is included at AttachmentB.

8.Guidance to assist portfolio Departments and CAC Act bodies to develop suitableconsultation arrangementsis included at Attachment C.

What is a compliance issue?

9.For the purpose of this Finance Circular, a compliance issueis the failure of a director or employee of a CAC Act body to comply with their variousdutiesunder the CACAct or the Corporations Act. For some offences either criminal or civil penalties may be applied, depending on the seriousness of the offence.

10.For CAC Act bodies, examples of directors’ and employees’ duties include, but are not limited to the following duties.

Civil penalties

  • failing to exercise care and diligence when discharging duties (subsection 22 of the CACAct for Commonwealth authorities; for wholly-owned Commonwealth companies, section180 of the Corporations Act).
  • failing to act in good faith and in the best interests of theCAC Act body for a proper purpose (section 23 of the CAC Act and section181 respectively)
  • improperlyusing their position or information obtained due to their employment with the CAC Act body for personal benefit, for someone else’s benefit or to the detriment of the CAC Act body or another person (sections 24 and 25 and sections 182 and 183 respectively).

Criminal offences

  • failing to act in good faith, misuse of position and misuse of information - criminal offences (section 26 and section184 respectively)
  • misusing a Commonwealth credit card or credit voucher. (sections 28A and 28B).

Managingcompliance issues

11.Boards of CAC Act bodies should ensure appropriate arrangements for training and updating the knowledge of all employees (including directors) on CAC Act obligations, and other relevant laws, such as the enabling legislation for a Commonwealth authority, are in place. Such arrangements may help reduce compliance issues resulting from a lack of understanding.

12.The National Alternative Dispute Resolution Advisory Council has prepared a guide entitled Managing Disputes in Federal Government Agencies: Essential Elements of a Dispute Management Plan. The guideaims tohelp Commonwealth agencies to develop and regularly review dispute management plans, including by ensuringappropriate use of alternative dispute resolution principles and processes.

13.Directors of CAC Act bodies should endeavour to conduct internal investigations on compliance cases where they are able to do so without risking perceptions of conflicts of interest. If the internal investigation reveals that a compliance issue could involvea criminal offence, the boardshould refer the matter to the AFP for investigation. Suspected issues under the Corporations Act should be referred to ASIC for investigation.

14.Though CAC Act bodies are responsible for progressing compliance cases, portfolio Departments have an interest in understanding compliance breaches that occur within the portfolio. The precise mechanisms for sharing information should be agreed by CAC bodies and portfolio Departments. Communication may take a variety of forms depending on the circumstances of the breach.

15.Correspondence between portfolio Departments and CAC Act bodies for serious compliance issues should generally be through the Chief Executive Officer or the Chair of the CAC Act body. Information soughtby the portfolio department may include:

  • whether the breach may cause a material loss to the CAC Act body;
  • the legislative provisions within the CAC Act or the Corporations Act(for whollyowned Commonwealth companies) that have not been complied with;
  • the director or employee involved; and
  • in the board’s view, whether the breach is civil or criminal in nature.

16.If information is not provided by a CAC Act body to a responsible Minister, the Minister mayuse subsections 16(1)(b) or 41(1)(b) of the CAC Act to require the board of the CAC Act body to provide information on compliance issues.

Finance’srole in enforcing CAC Act provisions

17.The Finance Minister has specific powers under Schedule 2 to the CACAct regarding civil contravention penalties (Attachment A). Among other things, these powers allow the Finance Minister to seek a disqualification order or a pecuniary penalty order under section27C of the CAC Act and clause 3 of Schedule 2 to the CACAct. Ministers who wish the Finance Minister to institute civil penalty proceedings should write to the Finance Minister. On some occasions, suspected compliance issues regarding CAC Act bodies may be raised with portfolio Departments or Ministers by the Department of Finance and Deregulation or the Finance Minister. Generally, input would be sought from CAC Act bodies, although protocol would normally mean this would occur through the portfolio department.

18.Currently, directors of CAC Act bodies in the General Government Sector are also required to provide an annualcompliance report. Guidelines on how to complete annual compliance reports can be found in the Finance Circular 2008/05:Compliance Reporting – CAC Act Bodies. The compliance report typically involves input from a CAC Act body’s Audit Committee. This is consistent with the role of Audit Committees in helping the authority or company (and its directors) “to comply with its obligations” under the CAC Act (as stated in sections 32 and 44 of the CAC Act, regarding authorities and companies respectively). More information may be found in Finance Circular 2008/03:Audit committees for Commonwealth authorities and wholly-owned Commonwealth companies.

Contacts

19.If you have any questions or comments about this Finance Circular, please contact or telephone (02) 6215 3657.

Marc Mowbray-d’Arbela

Assistant Secretary

Legislative Review Branch

Financial Management Group

21 October2011

1

Attachment A

Schedule2—Civil consequences of contravening civil penalty provisions

Note:See section6.

1 Declarations of contravention

(1)If a Court is satisfied that a person has contravened 1 of the following provisions, it must make a declaration of contravention:

(a)subsections 22(1) and 23(1) and (2), 24(1) and (2), 25(1) and (2) (officers’ duties);

(b)subsection 11(1) (annual reporting rules for Commonwealth authorities);

(c)subsection 20(4) (accounting records for Commonwealth authorities);

(d)subsection 30(3) (aligning accounting periods for subsidiaries of Commonwealth authorities);

(e)subsection 36(1B) (annual reports for Commonwealth companies).

These provisions are the civil penalty provisions.

Note:Once a declaration has been made, the Finance Minister can then seek a pecuniary penalty order (clause3) or a disqualification order (section27C).

(2)A declaration of contravention must specify the following:

(a)the Court that made the declaration;

(b)the civil penalty provision that was contravened;

(c)the person who contravened the provision;

(d)the conduct that constituted the contravention;

(e)the Commonwealth authority or Commonwealth company to which the conduct related.

2 Declaration of contravention is conclusive evidence

A declaration of contravention is conclusive evidence of the matters referred to in subclause 1(2).

3 Pecuniary penalty orders

(1)A Court may order a person to pay the Commonwealth a pecuniary penalty of up to $200,000 if:

(a)a declaration of contravention by the person has been made under clause1; and

(b)the contravention:

(i)materially prejudices the interests of the Commonwealth authority or Commonwealth company; or

(ii)materially prejudices the ability of the Commonwealth authority or Commonwealth company to pay its creditors; or

(iii)is serious.

(2)The penalty is a civil debt payable to the Commonwealth. The Commonwealth may enforce the order as if it were an order made in civil proceedings against the person to recover a debt due by the person. The debt arising from the order is taken to be a judgment debt.

4 Compensation orders

Compensation for damage suffered

(1)A Court may order a person to compensate a Commonwealth authority or Commonwealth company for damage suffered by the authority or company if:

(a)the person has contravened a civil penalty provision in relation to the authority or company; and

(b)the damage resulted from the contravention.

The order must specify the amount of the compensation.

Damage includes profits

(2)In determining the damage suffered by the Commonwealth authority or Commonwealth companyfor the purposes of making a compensation order, include profits made by any person resulting from the contravention or the offence.

Recovery of damage

(3)A compensation order may be enforced as if it were a judgment of the Court.

5 Effect of clause4

Clause4:

(a)has effect in addition to, and not in derogation of, any rule of law about the duty or liability of a person because of the person’s office or employment in relation to a Commonwealth authority or Commonwealth company; and

(b)does not prevent proceedings from being instituted in respect of such a duty or in respect of such a liability.

6 Who may apply for a declaration or order

Application by Finance Minister

(1)The Finance Minister, or some other person authorised in writing by the Finance Minister under this subclause to make the application, may apply for a declaration of contravention, a pecuniary penalty order or a compensation order.

Application by Commonwealth authority or Commonwealth company

(2)The Commonwealth authority or Commonwealth companymay apply for a compensation order.

(3)The Commonwealth authority or Commonwealth companymay intervene in an application for a declaration of contravention or a pecuniary penalty order in relation to the Commonwealth authority or Commonwealth company. The Commonwealth authority or Commonwealth companyis entitled to be heard on all matters other than whether the declaration or order should be made.

No one else may apply

(4)No person may apply for a declaration of contravention, a pecuniary penalty order or a compensation order unless permitted by this clause.

(5)Subclause(4) does not exclude the operation of the Director of Public Prosecutions Act 1983.

Attachment B

Steps to addressing compliance issues

(Dashed lines indicate options)

*Any decision to institute criminal proceedings is determined by the Commonwealth Director of Public Prosecutions. Once a criminal conviction has been recorded, civil penalty proceedings cannot continue in relation to the conduct that is substantially the same.

Attachment C

Guidance for Portfolio Departments and CAC bodies on consultation arrangements

If developing internal guidance on this matter, portfolio Departments and CAC bodies may wish to consider:

  1. identifying which officials shouldbe in charge of collecting information (including information on compliance);
  2. what type of information should be collected, for example:
  3. details of processes that CAC Act bodies have in place to identify CAC Act compliance issues;
  4. strategies implemented by CAC Act bodies to address reported compliance issues, such as:
  5. classifying the compliance issue as either civil or criminal;
  6. contacting enforcement agencies to facilitate further investigations;
  7. notifying the responsible Minister;
  8. existingreports provided to the audit committee on compliance issues as they are identified. To remove red tape, these reports could form part of CAC Act bodies’ (in the general government sector)annual compliance reporting(referFinance Circular 2008/05);
  9. a regular feedback process on remedial action for CAC Act compliance reporting issues; and
  10. incircumstances where the CAC Act body does not provide the information voluntarily, Departmental officials can be authorised (or delegated under s48B of the CAC Act[4]) by the portfolio Ministerto seek the information (refer sections 16 and 41 of the CAC Act).

Note: the authorisation or delegation would be provided to the Secretary of the Department, but delegations can be provided to a more appropriate officer.

References

CAC Act:sections 16 and 41

FMA Act:section 44

Policy Guidance:– Compliance Finance Circular 2011/06;

–Compliance Reporting – CAC Act Bodies

Finance Circular 2004/15Chief Executive Instructions

[1]Sections 22 of the CAC Act and 181 of the Corporations Act.

[2]Departments assisting Ministers in the oversight of portfolio bodies generally is consistent with longstanding principles as reflected, for example, in the 1976 Report of the Royal Commission on Australian Government Administration (also known as the Coombs Report).

[3]Schedule 2 to the CAC Act and sections 1317H – 1317S of the Corporations Act 2001 outline the consequences for CAC Act bodies that contravene civil penalty provisions.

[4]Section 48B allows Ministers to delegate some of their powers and functions to a Departmental Secretary. This was inserted into the CAC Act by the Financial Framework Legislative Amendment Act 2010, which commenced on 1March2011.