Certificate of Compliance – FMA Act Agencies
Key points
This circular:
- provides advice on theannual Certificate of Compliance process for Financial Management and Accountability Act1997 (FMA Act)agencies;
- affects all Chief Executives, Chief Financial Officers, audit committees and officials of FMA Act agencies;
- replaces Finance Circular 2009/06: Certificate of Compliance – FMA Act Agenciesand Finance Circular 2005/06:The financial framework—accountability for compliance and dealing with breaches; and
- is available at
Contents
Foreword
Part 1The Certificate of Compliance Process
1.1Key Concepts
1.2Key Steps
1.3Agency Governance
1.4The Certificate of Compliance
Part 2Guidance on Completing the Certificate
2.1Compliance with the Financial Management Framework
2.2Completing the Certificate
Part 3 Tools and Templates
3.1Certificate of Compliance Letter Template
3.2The Certificate of Compliance Template
3.3Appendix A: Non-Compliance Schedule Template
3.4Appendix B: Financial Sustainability Schedule Template
3.5Appendix C: List of Special Accounts Template
3.6Special Accounts Checklist
Part 4 Summary of Compliance Requirements in the FMA Act and Regulations
Part 5Frequently Asked Questions
Foreword
Foreword
This circular provides guidance on the annual Certificate of Compliance (Certificate) process for FMA Act agencies. The Certificate process is designed to improve compliance with the Australian Government’s financial management framework and to ensure that Ministers are kept informed of compliance issues within their portfolios.
Compliance monitoring is one element of the Department of Finance and Deregulation’s (Finance) broader strategy to improve the quality of public financial management in all aspects of Commonwealth operations. The Certificate process aims toimproveunderstanding of the financial management framework, and strengthen agency processes, through the identification of non-compliance issues and actions taken to improve processes and compliance. Analysis of Certificate results also provides an opportunity forFinance to identifyissues that are common across agencies, highlighting elements of the framework that may require improvement.
In 2010 and 2011, the Australian National Audit Office (ANAO) examined the Certificate process. The ANAO report,Management of the Certificate of Compliance Process in FMA Act Agencies, tabled on 20 April 2011, states that the Certificate process “has been effective and ... has heightened the focus of agencies on compliance.”
This circular addresses suggestions contained in the Audit Report to improvethe guidance available to agencies on the Certificate process.
This circular is provided in 5 parts. Part 1 provides an overview of responsibilities andrequirements relating to the Certificate. Part 2 contains specific guidance aboutcompleting the Certificate and Part 3 contains tools and templates. Part 4 provides further information regarding how to report compliance issues. Part 5 contains frequently asked questions, designed to give practical guidance to agency staff.
The FMA Act, FMA Regulations and related guidance are available on the Finance website at
Questions on the application of the Certificate process should be directed in the first instance to your Chief Financial Officer area. For questions relating to this Finance Circular, please contact the Financial Framework Policy Branch at .
Kerry Markoulli
Assistant Secretary
Financial Framework Policy Branch
Financial Management Group
December 2011
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Part 1 – The Certificate of Compliance Process
Part 1The Certificate of Compliance Process
1.1Key Conceptsp. 41.2Key Stepsp. 6
1.3Agency Governancep. 7
1.4The Certificate of Compliancep. 10
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1.1Key Concepts
agency meansa Department of State or a Department of the Parliament (including persons allocated to the Department by the Financial Management and Accountability Regulations1997 (FMA Regulations)), or any agency prescribed under the FMA Regulations (see section 5 of the FMA Act; FMA Regulations 4-5; and Schedule 1 of the FMARegulations).
allocated official means a person outside the Commonwealth who performs a financial task and temporarilybecomes an official of the FMA Act agency while they are undertaking that financial task. They are temporarily “allocated” to that agency (see FMA Regulation 4). Asan “allocated official”, they are subject to all the requirements of the financial management framework that apply to all officials, including the FMA legislation, the policies of the Commonwealth and the relevant agency’s Chief Executive’s Instructions(CEIs).
If a person outside the Commonwealth is involved with the receipt, custody or payment of public money under an agreement authorised under section 12 of the FMA Act, they do not temporarily become an official (i.e. an allocated official), as that task is not a financial task under FMA Regulation 3.
approver means a Minister or agency Chief Executive (including a Chief Executive’s delegate). An approver is authorised to consider and approve spending proposals under FMA Regulation 9. Aperson may also be authorised to approve proposals to spend public money under legislation other than the FMA Act (see FMARegulation 3).
ChiefExecutivemeans:
(a) for a prescribed Agency—the person identified by the regulations as the Chief Executive of the Agency; or
(b) for any other Agency—the person who is the Secretary of the Agency for the purposes of the Public Service Act 1999 or the Parliamentary Service Act 1999.
financial task means a task or procedure relating to the commitment, spending, management or control of public money. It does not include a task or procedure that is performed by a person outside the Commonwealth under an arrangement or agreement authorised under section 12 of the FMAAct (see FMA Regulation 3 and section 12 of the FMA Act).
official means a person who is in an agency or is part of an agency (see section 5of the FMAAct). This includes an individual who is allocated to an agency, including those temporarily allocated (i.e.anallocated official).
outsider means any person other than the Commonwealth, a Minister or an official (see section 12 of the FMA Act). For example, a contractor or consultant (including a company) involved in an arrangement with the Commonwealth for the provision of goods or services, such as administrative or management services undertaken for the Commonwealth, may be an outsider.
proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth (see section 44 of the FMA Act). While the FMA Act and Regulations do not define the terms efficient, effective, economical and ethical, it is
useful to note that the Australian National Audit Office (ANAO) defines:
-efficiency as maximising the ratio of outputs to inputs;
-effectiveness as the extent to which intended outcomes were achieved; and
-economy as minimising cost.
public money means:
a)money in the custody or under the control of the Commonwealth; or
b)money in the custody or under the control of any person acting for or on behalf of the Commonwealth in respect of the custody or control of the money;
including such money that is held on trust for, or otherwise for the benefit of, a person other than the Commonwealth (see section 5of the FMA Act).
Public money includes Australian currency, foreign currency and cheques in any currency. Public money can be appropriated by Parliament and is raised by or on behalf of the Commonwealth through taxes, borrowings, loan repayments, rebates, levies, fees and other means. Money held on trust by the Commonwealth and money found on Commonwealth premises is also public money.
The FMA Act andRegulations apply to all money held or controlled by FMA Act agencies, irrespective of whether the money is provided through the Federal Budget, a special appropriation or raised by the agency, such as through cost recovery.
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Part 1.2 – Key Steps
1.2Key Steps
1.The Chief Executives of all agencies under the FMA Act are required to provide a completed Certificate of Compliance (Certificate) to their portfolio Minister each year.
2.The purpose of the Certificate is to improve compliance with the Australian Government’s financial management framework and to ensure that Ministers, and the Presiding Officers in the case of the Parliamentary Departments, are kept informed of compliance issues within their portfolios.
3.The Certificate process is an important means of identifying and disclosing instances of non-compliance with the financial framework, as a basis for continuous improvement.
Certificate of Compliance Process
[1]
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Part 1.3 – Agency Governance
1.3Agency Governance
1.3.1 Responsibility of the Chief Executive
4.A key feature of the financial management framework, which is comprised of the FMAAct and Regulations, delegations and financial management policies,[2] is that agency ChiefExecutives are directly responsible for the financial management of their agencies.
5.Part 7 of the FMA Act sets out the specific responsibilities of Chief Executives. Section44 places a special responsibility on Chief Executives to manage the affairs of their agency in a way that promotes the “proper use” of the Commonwealth resources for which they are responsible. Properuse means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth. In managing the affairs of the agency, ChiefExecutives must comply with the FMA Act and Regulations and any other law.
6.Chief Executives generally discharge their responsibility under section 44 by ensuring that their agencies have appropriate internal controls, internal governance arrangements,delegations, guidance, education, reporting, monitoring,and process improvement mechanisms in place. For example, this may involve the establishmentof specific risk assessment and management activities around fraud control, with the creation of a specific fraud control unit or appointment of Fraud Control Officers to mitigate, monitor and investigate suspected fraud.
7.This broad responsibility to manage the affairs of an agency in a way that promotes proper use of Commonwealth resources, is complemented by other requirements in Part7 of the FMA Act, such as the requirements relating to audit committees, financial reporting and fraud control plans.
8.The processes, systems and controls Chief Executives put in place to promote compliance with the financial management framework may vary between agencies, depending on their size, operations, structure and activities. In most cases, these processes and controls are an extension of those processes that give confidence to the Chief Executive on matters, such as the use of delegations and budgetary management. The ChiefExecutive may consider drawing on a program of internal audits, assessment of internal controls, specific senior management requirements, and specialised assurance in relevant high-risk areas, in addition to other advice, materials and processesin signing the Certificate. It is also expected that audit committees will review and monitor internal control mechanisms and advise Chief Executives on compliance issues on an ongoing basis.
9.Chief Executives should put in place appropriate controls to ensure that “officials” within their agency comply with the requirements of the financial management framework. Accordingly, Chief Executivesshould investigate possible breaches of legislation and noncompliance with Australian Government policy and initiate appropriate corrective action.
1.3.2 Responsibility of the Audit Committee
10.Under section46 of the FMA Act, Chief Executivesmust establish an audit committee with functions and responsibilities specified in the FMA Regulations. The audit committee is a key component of an agency’s corporate governanceand is animportant mechanism for overseeing an agency’s financial management processes andcompliance with the financial management framework.
11.Chief Executivesmust set the terms of reference for theiraudit committees, consistent with the general requirements contained in FMA Regulation 22C. Audit committeesshould put in placeactivities to promote internal compliance and monitoring arrangements. The Australian National Audit Office has published a Better Practice Guide entitled Public Sector Audit Committeeswhich provides guidance on the establishment and operation of audit committees.
12.Audit committees play a key role in developing and implementingactivities and procedures to support the Certificate process. The audit committee’s advice on internal controls should give confidence to a ChiefExecutive when completing the Certificate.
1.3.3 Responsibility of the Chief Financial Officer
13.Chief Financial Officers(CFOs) are generally the principal financial advisor to agencies’Chief Executives. The scope and range of activities undertaken by aCFO will vary, buthis/her primary responsibility is to promote good budget and financial management practices and to support the Chief Executiveto discharge his/her financial management responsibilities, in accordance with the FMA Act and Regulations and the financial management policies. This role usually involves overseeing the financial managementand budget processes within an agency. It also includes establishing mechanisms to meet specific reporting requirements and advising the Chief Executive on the financial health of the agency. As such, the CFO will have a key role in anagency’s Certificate processes.
1.3.4Responsibilityof all officials
14.The financial management frameworkestablishes specific financial management responsibilities for all officials. For example, section 14 of the FMA Act requires that officials must not misapply, improperly dispose of, or improperly use “public money”. Section 41 mirrors this requirement for public property. In addition, the special responsibility of Chief Executives to promote the proper use of Commonwealth resources is a requirement that is generally also applied to officials, through CEIs, delegations and other internal requirements.
15.These requirements are reinforced by the various employment frameworks that apply to officials. For example, the Australian Public Service (APS) Code of Conductsets out the standards of conduct required of all APS employees. This includes compliance with applicable Australian laws and using Commonwealth resources in a proper manner. Officialsemployed under other employment arrangements, for example Defence personnel or Australian Federal Police employees, are subject to similar requirements as a condition of employment.
16.There is a responsibility for all officialsto comply withand, where relevant,report any suspected instances of noncompliance of the FMA Act, Regulations and financial management policies to the appropriate area within their agency.[3] Theagency will determine if any non-compliance is reportable for Certificate purposes. Theidentification and reporting of noncompliance should be used as the basis forimproving agency processes and increasing awareness and understanding of the financial management framework.
17.Officialswith specific financial management responsibilities, especially those who are delegates, should have a good understanding and knowledge of the financial management framework and their associated responsibilities.
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Part 1.4 – The Certificate of Compliance
1.4 The Certificate of Compliance
1.4.1Purpose
18.The purpose of the Certificate is to improve compliance with the financial management framework and to ensure that Ministers are kept informed of compliance issues within their portfolios.
19.The Certificate process aims to improveofficial’s understanding of the financial management framework, and strengthen agency processes, through the identification of non-compliance issues and by undertaking action to improve processes and compliance. The Certificate promotes continuous improvement within agencies. Analysis of Certificate results also provides an opportunity for Finance to identifyissues that are common across agencies, thereby highlighting elements of the framework that may require improvement.
20.The Certificate focuses on identifying non-compliance and improving agency processes. Therefore, individual agencies are not currently identified in the Certificate of Compliance Report to Parliament. Chief Executives should ensure that their systems are robust and identify non-compliance with a view to process improvement. In particular, agencies that report low or no instances of non-compliance should ensure that they have adequate processes to identify instances of non-compliance.
21.Finance prepares an analysis of annual Certificate results that is tabled in the Parliament each year. This analysis is aggregated to a portfolio level and does not identify agencies. This analysis is reported against six categories which represent key elements of the financial management framework (seePart 4 of this circular).
1.4.2 CertificateRequirements
22.The Certificate is based on a self-assessment by an agency’s Chief Executive. It is an assessment of an agency’s compliance based on advice and internal controls. The Certificate also requires Chief Executives to state whether their agency has adopted appropriate management strategies for all known risks that may affect the financial sustainability of the agency and whether it is operating within the agreed resources for the current financial year as at the date of signing (see Part 2.2 for further information).
23.The Certificate must be provided to the responsible portfolioMinister and the Finance Minister, by 15October each year. If 15 October falls on a weekend, then the Certificate is required to be provided on the last working day prior to the weekend.
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Part 2 – Guidance on Completing the Certificate
Part 2Guidance on Completing the Certificate
2.1Compliance with the Financial Frameworkp. 122.2Completing the Certificatep. 15
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Part 2.1– Compliance with the Financial Framework
2.1Compliance with the Financial Management Framework
Elements of the Financial Management Framework
Whole-of-Government Financial Management Framework /[4]
24.FMA Act agencies operate within an environment that is made up of legislation, legislative instruments and government policy. Within this context, the financial management framework consists of the legislation, delegations and financial managementpolicies, such as those governing the management of Commonwealth resources. Given the broad scope of financial management policies, only certain policies are reportable for Certificate purposes(see Part 2.1.3 of this Circular).
2.1.1The FMA Act and Regulations
25.The FMA Act and Regulations establish requirements for all ChiefExecutives and officials. Failure to meet these requirements, or exceeding theauthority provided under this legislation should be reported at Appendix A to the Certificate.
26.To assist agencies, Part 4 ofthis circular provides information on the compliance requirements of the FMA Act and Regulations as at December 2011. This can be used to develop an internal compliance checklist or questionnaire, which should be regularly reviewed and updated when there are significant changes to the FMA Act and Regulations.
2.1.2Finance Minister to Chief Executives Delegation
27.The Finance Minister has delegated certain powers and responsibilities to ChiefExecutives, with directions. If a delegate does not comply with these directions, or if an official acts without the appropriate delegation, this should be reported at Appendix Atothe Certificate against the relevant Schedule and Part of the Delegation.