15 Aug 2013

Commonwealth entities get new performance assessment requirements

by Brian O'Callaghan, Justin Bernau

Commonwealth entities will need to adopt new approaches to corporate planning, risk management and performance assessment under the new Public Governance, Performance and Accountability Act 2013.

As part of a move to establish a coherent and robust performance framework across the Australian Government, new corporate planning, risk management and performance assessment requirements will apply to Commonwealth entities from 1July 2014.

The preliminary sections of the Public Governance, Performance and Accountability Act 2013 (PGPA Act) commenced on 1July 2013, with the operative provisions expected to commence on 1July 2014. The Department of Finance and Deregulation is currently working on the PGPA Rules which are disallowable instruments and are expected to commence on 1July 2014.

The PGPA Act and Rules consolidate the governance, performance and accountability requirements for the Commonwealth, and will replace the Financial Management and Accountability Act 1997 (FMA Act), the Commonwealth Authorities and Companies Act 1997 (CAC Act) and the regulations made under those Acts.

This article focuses on the new performance requirements for Commonwealth entities and does not cover other requirements of the PGPA Act applicable to Commonwealth entities or the framework for Commonwealth companies.

Key concepts under the PGPA Act and Rules

The PGPA Act mainly applies to Commonwealth entities. A "Commonwealth entity" includes both a non‑corporate Commonwealth entity (essentially an FMA agency under current terminology) and a corporate Commonwealth entity (essentially a CACAct authority). However, the PGPA Act also contains provisions about planning by, and the accountability of, "Commonwealth companies" (CACAct companies under current terminology).

The PGPA Act contains a number of significant changes in the governance of Commonwealth entities. A single definition of "public resources" is used to apply to all money and all property held by Commonwealth entities, including corporate Commonwealth entities. This is a major change and the rationale for extending this definition to Commonwealth authorities is that their moneys and property are still public resources in the sense that they should be properly managed. The PGPA Act contains provisions on the use and management of public resources by Commonwealth entities, including a uniform set of duties relating to Commonwealth entities, their accountable authorities and their officials.

Every Commonwealth entity has an "accountable authority". This is the Secretary of a department, the person or group of persons prescribed for an agency that is not a department and the Board of a corporate Commonwealth entity. The accountable authority of a Commonwealth entity must govern the entity in a way that promotes the proper use and management of public resources for which the authority is responsible, promotes the achievement of the purposes of the entity and promotes the financial sustainability of the entity. The accountable authority must take into account the effect of its decisions on public resource generally.

Each Commonwealth entity also has "officials" who include officers and employees of the entity, including the accountable authority or members of that authority (as relevant).

New performance requirements

Key elements of the new performance framework for Commonwealth entities are:

  • the Australian Government may, from time to time, publish a statement setting out its key priorities and objectives;
  • each Commonwealth entity must prepare a corporate plan in accordance with the Rules, setting out its objectives, strategies, assumptions, risks and performance targets, and explaining how it will use its resources to achieve the relevant priorities of Government;
  • each Commonwealth entity must prepare budget estimates covering the entity's activities for each reporting period;
  • each Commonwealth entity must prepare annual performance statements, including information about the entity's performance in achieving its purposes, to be tabled in Parliament as part of its annual report;
  • the responsible Minister for a Commonwealth entity or the Finance Minister may request the Auditor‑General to examine and report on the entity's annual performance statements (to be tabled by the requesting Minister in each House of the Parliament);
  • each Commonwealth entity must keep records that properly record and explain the entity's performance in achieving its purposes, comply with the Rules and enable the preparation of the annual performance statements; and
  • each Commonwealth entity must establish and maintain an appropriate system of risk oversight and management for the entity.

These requirements for Commonwealth entities are drafted as obligations directly on the entity's accountable authority. The corporate planning requirements have elements consistent with corporate planning practices commonly adopted in the private sector, in that an organisation specifies its vision, its priorities in achieving its vision and its strategies to achieve its priorities, and seeks to align the planning activities and resources of individual corporate units with the priorities of the organisation as a whole.

Practical implications

Many Commonwealth entities currently produce corporate plans – for example, as a GBE under the CAC Act, under their enabling legislation, or in accordance with the Minister's expectations, financial reporting guidelines and better practice for agencies. A first step will be for Commonwealth entities to conduct a gap analysis between their current practices and the requirements of the PGPA Act. Chief Executive Instructions will also need to be updated to reflect the PGPA Act and Rules. A number of important matters of detail remain to be confirmed in the Rules.

An important step for Commonwealth entities will be to clarify their purposes, which are defined to include their objectives, function or role, and consider how their operations and activities relate to the key priorities and objectives set out in the Australian Government statement (as applicable from time to time).

They will also need to determine appropriate metrics to be used in measuring, assessing and reporting on performance, and ensure that their record‑keeping processes adequately record and explain their performance and will readily enable a performance audit of the process for selecting appropriate metrics and assessing performance.

Risk management systems should be reviewed to ensure that policies and business processes for identifying, measuring, managing and reporting materials risks, commensurate with the level of risk, are in place.

Commonwealth entities will need to develop a performance reporting timetable alongside their financial reporting timetable, as performance statements will become part of an integrated annual report that brings together information about an entity's strategy, governance and financial and non‑financial performance.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.