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Finance CircularNo. 2011/01

Commitments to spend public money (FMA Regulations 7 to 12)Key pointsThis circular:

- applies to all agencies under the Financial Management and Accountability Act 1997 (the FMA Act) and their Ministers;

- incorporates the 1 July 2010 amendments to the Financial Management and Accountability Regulations 1997 (the FMA Regulations) and the 1 March 2011 changes to the FMA Act;

- replaces Finance Circular 2009/05 Commitments to spend public money (FMA Regulations 7 to 13) and Finance Circular 2007/01 FMA Regulation 10; and

- is available at http://www.finance.gov.au/publications/finance-circulars/index.html.

ContentsForeword p. 2Part 1: Committing public money – an introduction

1.1 Key steps p. 51.2 Key concepts p. 6

Part 2: Key legal requirements - commentary2.1 Committing to spend public money p. 10

2.1.1 Section 44 p. 112.1.2 Regulation 8 p. 152.1.3 Regulation 9 p. 202.1.4 Regulation 10 p. 252.1.5 Regulation 10A p. 302.1.6 Regulation 12 p. 34

2.2 Grants, procurements and arrangements with outsiders p. 372.2.1 Regulation 7 (procurement) p. 38

Regulation 7A (grants) p. 382.2.2 Section 12 (outsiders) p. 40

Part 3: Workbook – applying the framework3.1 Applying the FMA Regulations – examples p. 49

3.1.1 Simple spending proposal: catching a taxi p. 493.1.2 Complex spending proposal: standing offer p. 503.1.3 Grant p. 513.1.4 Arrangement that includes an indemnity p. 52

3.2 Using Regulation 10 and 10A p. 533.2.1 When is Regulation 10 agreement required? p. 533.2.2 The Delegation p. 563.2.3 Worked examples p. 633.2.4 Summary of the Delegation for Regulation 10 p. 693.2.5 Regulation 10 agreement request form p. 71

of 75 Finance Circular 2011/01 Department of Finance and Deregulation

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Foreword

ForewordThe FMA Act and Regulations set out the law governing the proper use and management of public money and public property – that is, money and property in the custody or control of the Commonwealth, including money and property held on trust.

This circular provides guidance on the interpretation and operation of section 44 of the FMA Act and Regulations 7-12, the core legislative requirements that apply to commitments to spend public money. These provisions apply to all agencies under the FMA Act and to all persons, including Ministers, considering entering into arrangements under which public money is payable or may become payable. It also contains advice on arrangements where a person outside of the Commonwealth handles public money as an allocated official or under an agreement authorised under section 12 of the FMA Act.

This circular is provided in 3 Parts. Parts 1 and 2 provide an overview of the requirements that apply to committing public money and includes frequently asked questions. Part 3 provides more detailed technical guidance, primarily on FMA Regulation 10 and 10A. It is aimed at finance staff and relevant project officers who regularly undertake these functions.

The commitment and management of public money is a fundamental part of an FMA Act agency’s day-to-day activities and it is essential that all officials and their Ministers are aware of their legal obligations.

This circular reflects important changes to the FMA Act, which came into effect on 1 March 2011, and changes to the Regulations, which came into effect on 1 July 2010. Amendments were made to:

- section 44 of the FMA Act to add ‘economical’ to the definition of ‘proper use’;

- Part 4 of the FMA Regulations (i.e. the old Regulations 7-14) to provide a logical and sequential workflow and rationalise definitions and improve readability;

- disapply Regulation 10 where contingent liabilities are assessed as ‘remote’ and ‘non-material’, through the introduction of Regulation 10A;

- de-couple the timing of processes under Regulations 9 and 10, so that Regulation 10 agreement is not required before Regulation 9 approval, alleviating the practical difficulty some agencies had in complying with the timing aspect of the previous requirements;

- provide Chief Executives with the power to allow for their delegates to make sub-delegations under the FMA Regulations (Regulation 26); and

- the definition of a ‘grant’ to exclude payments of assistance for the purposes of Australia’s international development assistance program (see Regulation 3A (2)(l)).

The FMA Regulations contain a broad transitional and savings provision that gives agencies until 1 July 2011 to update their internal procedures, Chief Executive’s Instructions (CEIs), delegations and related materials.

The FMA Act and Regulations are available at http://www.finance.gov.au/financial-framework/fma-legislation/index.html.

The amendments to the FMA Regulations have been reflected in a revised Delegation from the Finance Minister to agency Chief Executives and the Finance Secretary, available at http://www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html.


http://www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html

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Foreword

Questions on the application of provisions in the FMA Act and Regulations that relate to commitments to spend public money 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 [email protected].

Kerry MarkoulliActing Assistant SecretaryFinancial Framework Policy BranchFinancial Management Group31 March 2011


Part 1 – Committing public money - an introduction

Part 1 Committing public money – an introduction


1.1 Key steps p. 5

1.2 Key concepts p. 6

Part 1.1 – Key steps when committing public money

1.1 Key stepsThe following provisions of the FMA Act and Regulations apply when considering a proposal to spend public money. They must be considered before any arrangement (such as a contract or funding agreement) is entered into and the order of certain steps may be important.

Also consider whether the following requirements apply:


Section 44: Agency Chief Executive (and delegates) has the power to enter into contracts on the Commonwealth's behalf in relation to agency affairs

Regulation 12: Record the terms of the Regulation 9 approval as soon as practicable. For grants, also record the basis of the approval

Regulation 10A: Regulation 10 does not apply to contingent liabilities assessed as remote and

non material‑

Regulation 10: Seek Finance Minister's (or delegate's) written agreement for arrangements

not supported by sufficient available appropriation

Regulation 9: Approvers to consider spending proposals (i.e. proposals that could lead to entering an arrangement). Only approve if satisfied that

the spending proposal is a proper use of resources.

Make reasonable inquiries

Regulation 8: Do not enter into an arrangement (contract or agreement) unless it has been approved under Regulation 9 and, if required, agreed to in writing under

Regulation 10

Section 44: Manage agency affairs to promote proper use of Commonwealth resources (i.e. efficient, effective, economical and ethical use not inconsistent with Commonwealth policies)

Regulation 7: Officials must act in accordance with the

Commonwealth Procurement Guidelines (CPGs)

Is the arrangement a procurement? If so, Comply with the CPGs

Regulation 7A: Officials must act in accordance with the

Commonwealth Grant Guidelines (CGGs)

Is the arrangement a grant as defined in Regulation 3A? If so,

Comply with the CGGs

Section 12: Arrangements for the receipt, custody or payment of

public money by 'outsiders'

Will the arrangement involve an outsider handling public money? If so,

Put in place an agreement authorised under section 12

ORAn allocated official situation will arise

Officials should make reasonable inquiries to ensure that they comply with any other relevant Commonwealth policies which may be applicable when considering a spending proposal

Part 1.2 – Key concepts

1.2 Key conceptsagency means a Department of State, or a Department of the Parliament (including persons allocated to the Department by the Regulations), or any agency prescribed under the FMA Regulations (see the FMA Act, section 5, Regulations 4-5 and Schedule 1 of the Regulations).

allocated official means an outsider (any person other than the Commonwealth, an official or a Minister) who performs a financial task. The outsider becomes an allocated official of the FMA Act agency when they are undertaking a financial task. Allocated officials are subject to all the requirements of the financial management framework that apply to officials, including the FMA legislation, the policies of the Commonwealth and the relevant agency’s Chief Executive’s Instructions.

appropriation means an authority under the FMA Act or any other law to draw money from the Consolidated Revenue Fund (CRF), whether or not the law concerned uses the word ‘appropriation’ or ‘appropriated’ (see the FMA Act, section 5).

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 Regulation 9. A person may also be authorised to approve proposals to spend public money under legislation other than the FMA Act (see Regulation 3).

arrangement means an arrangement, including a contract or agreement, under which public money is payable or may become payable, other than:

(a) an arrangement for:(i) the engagement of an employee; or

(ii) the appointment of a person to a statutory office; or(iii) the acquisition of particular property or services under a general arrangement

with the supplier of that property or those services, for the purposes of providing a statutory or employment entitlement; or

(b) an international agreement governed by international law (see Regulation 3).

Commonwealth Grant Guidelines (CGGs) are guidelines that have been issued in relation to grants administration. They can include policies and processes, publication requirements and requirements regarding entering into grants. The CGGs are a legislative instrument and an official performing duties in relation to grants administration must act in accordance with them (see Regulation 7A and the FMA Act, section 64).

Commonwealth Procurement Guidelines (CPGs) are guidelines that have been issued in relation to procurement. They can include policies and processes, publication requirements and requirements regarding entering into procurement arrangements. The CPGs are a legislative instrument and an official performing duties in relation to procurement must act in accordance with them (see Regulation 7 and the FMA Act, section 64).

contingent liabilities, in the context of Regulations 10 and 10A, are commitments that may give rise to a liability as a result of a future event. They often result from indemnities, guarantees, warranties or other commitments of this type which are included in contracts.

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 performed by an outsider under an arrangement or agreement authorised under section 12 of the



FMA Act. An outsider means any person other than the Commonwealth, an official or a Minister (see Regulation 3 and the FMA Act, section 12).

grant is defined by Regulation 3A. A grant is an arrangement for the provision of financial assistance by the Commonwealth:

(a) under which public money is to be paid to a recipient other than the Commonwealth; and

(b) which is intended to assist the recipient achieve its goals; and(c) which is intended to promote one or more of the Australian Government’s policy

objectives; and (d) under which the recipient is required to act in accordance with any terms or

conditions specified in the arrangement.

The CGGs apply to all arrangements defined in Regulation 3A. Regulation 3A also exempts certain arrangements from the definition of a grant, and therefore from the CGGs, including procurements, gifts, tax concessions, loans, investments, certain intergovernmental payments and international official development assistance. Notional payments between FMA agencies, within the meaning of section 6 of the FMA Act, are not grants for the purposes of Regulation 3A.

official means a person who is in an agency or is part of an agency (see the FMA Act, section 5).

proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth (see the FMA Act, section 44). 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 the FMA Act, section 5).

Public money includes Australian currency, bankable 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 and money found on Commonwealth premises is also public money.

The FMA Act and Regulations 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.

spending proposal means a proposal that could lead to entering into an arrangement (see Regulation 3). The definition is intended to make clear that a spending proposal is distinct



from, and precedes, an arrangement (such as a contract or agreement) that may flow from the approved spending proposal. Spending proposals can also involve notional payments within and between agencies, which should be treated as real payments of public money (see the FMA Act, section 6).

Special Public Money is defined as public money that is not held on behalf of the Commonwealth or for the use or benefit of the Commonwealth. Money held by the Commonwealth on trust for another person is one example of special public money (see the FMA Act, section 16). However, unless the Finance Minister has issued a special instruction under section 16 of the FMA Act in relation to the special public money, the special public money attracts the same legal obligations as public money.


Part 2 – Key legal requirements - commentary

Part 2 Key legal requirements - commentary


2.1 Committing to spend public money2.1.1 Section 44 p. 112.1.2 Regulation 8 p. 152.1.3 Regulation 9 p. 20 2.1.4 Regulation 10 p. 252.1.5 Regulation 10A p. 302.1.6 Regulation 12 p. 34

2.2 Grants, procurements and arrangements with outsiders2.2.1 Regulation 7 (procurement) p. 38

Regulation 7A (grants) 2.2.2 Section 12 (outsiders) p. 40

Part 2.1 – Committing to spend public money

2.1 Committing to spend public money

Key steps:


Section 44: Agency Chief Executive (and delegates) has the power to enter into contracts on the Commonwealth's behalf in relation to agency affairs

Regulation 12: Record the terms of the Regulation 9 approval as soon as practicable. For grants, also record the basis of the approval

Regulation 10A: Regulation 10 does not apply to contingent liabilities assessed as remote and

non material‑

Regulation 10: Seek Finance Minister's (or delegate's) written agreement for arrangements

not supported by sufficient available appropriation.

Regulation 9: Approvers to consider spending proposals (i.e. proposals that could lead to entering an arrangement). Only approve if satisfied that

the spending proposal is a proper use of resources.

Make reasonable inquiries

Regulation 8: Do not enter into an arrangement (contract or agreement) unless it has been approved under Regulation 9 and, if required, agreed to in writing under

Regulation 10

Section 44: Manage agency affairs to promote proper use of Commonwealth resources (i.e. efficient, effective, economical and ethical use not inconsistent with Commonwealth policies)

(1) A Chief Executive must manage the affairs of the Agency in a way that promotes proper use of the Commonwealth resources for which the Chief Executive is responsible.Note: A Chief Executive has the power to enter into contracts, on behalf of the

Commonwealth, in relation to the affairs of the Agency. Some Chief Executives have delegated this power under section 53.

(2) In doing so, the Chief Executive must comply with this Act, the regulations, Finance Minister’s Orders, Special Instructions and any other law.

(3) In this section:proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth.

Part 2.1.1 – Section 44

2.1.1 Section 44 - Promoting the proper use of Commonwealth resources

Commentary

1. Part 7 of the FMA Act sets out the special responsibilities of agency Chief Executives, including the requirement, in section 44, that a Chief Executive must manage the affairs of his or her agency in a way that promotes the ‘proper use’ of the Commonwealth resources for which the Chief Executive is responsible.

2. Proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth. Proper use was previously defined as ‘efficient, effective and ethical use that is not inconsistent with the policies of the Commonwealth’.

3. Section 44 is an overarching requirement applying to all aspects of an agency’s resource management, including the management of ‘public money’ and ‘public property’, the administration of programs, the provision of grants, and procurement.

4. One way Chief Executives discharge their responsibility under section 44 is by ensuring that their agencies have appropriate internal controls and guidance in place, such as Chief Executive’s Instructions (CEIs) and operational guidelines.

5. The FMA Act does not define the terms ‘efficient’, ‘effective’ or ‘economical’ for the purposes of section 44 (and Regulation 9). However, as a starting point, it would be appropriate to have regard to the following when considering the question of proper use:

- efficiency generally relates to maximising the ratio of outputs to inputs; - effectiveness generally relates to the extent to which intended outcomes or

results are achieved; and - economy generally relates to minimising cost. This is explained in more detail

below at paragraph 6.

(Refer also to Part 1.2 - Key concepts).

6. Section 44 establishes a positive and personal obligation on every agency Chief Executive to manage the affairs of their agency in a way that promotes the proper use of Commonwealth resources.



- The Financial Framework Legislation Amendment Act 2010 added the word ‘economical’ to the definition of proper use of Commonwealth resources under section 44. This took effect on 1 March 2011.

- As stated above, the FMA Act does not define the terms efficient and effective for the purposes of section 44. These terms take their ordinary meaning. The concepts of efficient and effective already encompass the concept of economical. The addition of the term economical in the definition of proper use is intended to emphasise the requirement to avoid waste and increase the focus on the level of resources that the Commonwealth applies to achieve outcomes.

7. Chief Executives are responsible for the management of their agencies and they are required to do so in compliance with the law and in the context of the Australian Government’s policy framework. This is reflected in sections 44(2) and 44(3). Key legal and policy requirements include, but are not limited to:

- Ministerial Guidelines authorised by section 64 of the FMA Act (including the Commonwealth Grant Guidelines (see Regulation 7A), Commonwealth Procurement Guidelines (see Regulation 7) and Fraud Control Guidelines (see Regulation 16A));

- applicable legislation of the Commonwealth, including requirements relating to privacy, anti-discrimination, freedom of information, occupational health and safety;

- applicable policies of the Commonwealth, including requirements regarding government advertising, cost-recovery, competitive neutrality, foreign exchange, property management guidelines and contingent liabilities; and

- the guidelines applying to particular program activities, such as grant program guidelines.

8. In relation to procurement, a useful starting resource to find relevant policies is the list that appears in Financial Management Guidance No. 10: Guidance on Complying with Policies of the Commonwealth in Procurement. This is available on the Finance website at http://www.finance.gov.au/publications/fmg-series/10-complying-with-legislation.html.

9. The reference to policies of the Commonwealth in section 44(3) does not reduce the authority or decision-making alibility of independent statutory office holders, whose position has been set out in legislation, if they are making a decision that is an integral part of their statutory function. This is because policy, where it is not entrenched in legislation, is subservient to the law.

10. The note to section 44 states that a Chief Executive ‘has the power to enter into contracts, on behalf of the Commonwealth, in relation to the affairs of the Agency’. The note recognises that Chief Executives can exercise the executive power of the Commonwealth generally, to the extent that it relates to the affairs of their agency. This capacity mirrors that of Ministers, in whom executive power of the Commonwealth vests, as well as the executive power of the Governor-General (see sections 61 and 64 of the Constitution). The executive power of the Commonwealth is used where the


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Commonwealth enters into ‘arrangements’, including contracts, leases and licences (except where this is done under the authority of legislation).

11. The reference in the note to a Chief Executive being able to enter contracts ‘in relation to the affairs of the Agency’ is to be read in broad terms. In particular, the Government will generally expect agencies to work cooperatively in a range of areas, including the implementation of whole-of-government policies. For example, this might include one agency entering into a contract on behalf of the Commonwealth, where the services can be accessed by other agencies or governmental bodies, such as occurs currently, by the Department of Finance and Deregulation in relation to the leasing of vehicles for Commonwealth agencies. There may also be occasions when agencies decide cooperatively to share arrangements, such as through a request for tender that allows the inclusion of other agencies.

12. Similarly, a Department of State may need to work closely with other agencies in the same portfolio. This is particularly the case in relation to formation, dissolution or change processes for portfolio agencies or bodies generally, where Departments may legitimately obtain goods or services on behalf, or in anticipation, of the requirements of a portfolio body.

13. Moreover, some FMA Act agencies will be required, by their nature, to deal with contracts and payments on behalf of other agencies. In these cases, arrangements might also be established to reimburse the agency bearing the initial costs of such contracts.

14. The note to section 44 also recognises that a Chief Executive may delegate their power to enter contracts on behalf of the Commonwealth to officials in accordance with section 53 of the FMA Act. Delegations are an important way for Chief Executives to pass on their power to enter into contracts to officials within their agency or to relevant officials of other agencies, if desired.

- Where agencies are entering into a cross-agency arrangement, a Chief Executive (or their delegate) may instead agree, preferably in writing, to allow another Chief Executive (or delegate) to commit appropriation/s for which they are responsible. This means that the Chief Executive of the lead agency could rely on their own Regulation 9, Regulation 10 and section 44 powers to approve a ‘spending proposal’, and enter into a commitment of public money in relation to the other agency’s appropriations. Any commitment would need to be consistent with the purposes of the relevant appropriation of the funding agency.

15. The ability to provide delegations under section 53 also includes the ability of the Chief Executive to provide directions to delegates about their use of the delegation. Similarly, a Chief Executive may provide instructions to officials in their agency, including delegates, through CEIs.

Frequently asked questions

1. Should spending proposals be approved under section 44?

No. Spending proposals should be approved under Regulation 9 and arrangements, such as contracts, resulting from the spending proposal are entered into under section 44.



2. Does a Minister enter into a contract under section 44?

No. Ministers are empowered under the Constitution to enter into contracts on behalf of the Commonwealth.

3. Can officials enter into arrangements?

Yes, if the official has been delegated the power or received written authorisation to enter into an arrangement under section 44 of the FMA Act, or another Act.

4. Can I select what I consider to be an efficient, effective, and economical tender proposal if it is inconsistent with Commonwealth policy?

No. Proper use is defined as ‘efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth’. A simple example is the procurement of paper. Seeking the cheapest price for a certain quality product may produce an efficient, effective and economical use of resources. However, if there was a government policy that environmental considerations must be integrated into purchasing, an official would be required to consider purchasing the cheapest, best quality ‘environmentally preferable’ paper, produced from recycled materials and in accordance with relevant production and emission licensing requirements.

5. Legislation requires me to do something which I do not consider to be as efficient, effective and economical as an alternative course of action. Should I do it?

Section 44(1) requires a Chief Executive to manage agency affairs in a way that promotes proper use of Commonwealth resources, while section 44(2) provides that in doing so, the Chief Executive must also comply with any other law. The boundaries of the law set the legitimate context within which the proper use of resources is to be promoted.

6. If a contract has been signed by an official without a section 44 delegation, is the contract still enforceable?

Generally, yes. However, there may be some doubt in circumstances where it should have been clear to the non-Commonwealth party that the signatory for the Commonwealth did not have the authority to bind the Commonwealth.

7. Can an official enter into a contract under section 44 which commits another agency’s appropriation?

Yes. There are two options available:

- the agency that is responsible for the appropriation could delegate section 44 powers to an official in the administering agency; or

- the affected Chief Executive/s could agree to the use of their agency’s appropriation by another agency, which would allow the administering agency to rely on its own section 44 powers. It is preferable for the agreement to be in writing. Any commitment would need to be consistent with the purposes of the funding agency’s appropriation.

(See paragraph 14 of this Part for further information).


A person must not enter into an arrangement unless:(a) a spending proposal has been approved under regulation 9; and(b) if required, written agreement has been given under regulation 10.

Note 1: If an agreement under regulation 10 is required, the agreement does not have to be given before the proposal is approved under regulation 9. A Chief Executive may require, for example in the Chief Executive's Instructions, that these processes be done in a particular order.

Note 2: A Chief Executive has the power to enter into arrangements, on behalf of the Commonwealth, in relation to the affairs of the Agency. Some Chief Executives have delegated this power under section 53 of the Act — see section 44 of the Act.

Part 2.1.2 – Regulation 8

2.1.2 Regulation 8 - Entering into an arrangement

Commentary

1. Regulation 8 establishes requirements that must be met before a person enters into an arrangement.

2. Arrangement is defined in Regulation 3. It means an arrangement, including a contract or agreement, under which public money is payable or may become payable.

- The definition in Regulation 3 also excludes certain types of arrangements, such as those made for employment, statutory entitlements and international agreements governed by international law, such as treaties.

Public money may also become payable as a result of a contingent liability crystallising. The definition of an arrangement includes arrangements that contain contingent liabilities, such as indemnities, guarantees, warranties and letters of comfort (i.e. an obligation to pay public money on the occurrence of a particular future event). Financial Management Guidance No. 6: Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort sets out the Australian Government policy on contingent liabilities, available at http://www.finance.gov.au/publications/finance-circulars/2003/02.html.

3. Under Regulation 8, an arrangement must not be entered into unless a spending proposal has first been approved under Regulation 9. Spending proposal is defined in Regulation 3 and means a proposal that could lead to entering into an arrangement. It is therefore important to not confuse a spending proposal with the arrangement itself.

- A spending proposal is a proposition considered by an approver, whether orally or in writing, which requires the approver to apply the test set out in Regulation 9. If the test is satisfied, the spending proposal may be approved, opening the way for a person to subsequently enter into an arrangement, for example, by signing a contract (the requirements of Regulation 9 are discussed further in Part 2.1.3 of this circular).

4. Regulation 8 establishes the further requirement that a person must not enter into an arrangement unless written agreement has been given under Regulation 10, if required. Regulation 10 is triggered if there is an insufficient appropriation to meet the full expenditure that might be payable under an arrangement (the requirements of Regulation 10 and 10A are discussed further in Parts 2.1.4 and 2.1.5 of this circular).


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- The wording of Regulation 8 does not mandate the order in which a Regulation 9 approval and a Regulation 10 agreement must be obtained. This is acknowledged in Note 1 to Regulation 8. However, securing Regulation 9 approval and, if necessary, Regulation 10 agreement is a mandatory requirement. It must be complied with before entering into an arrangement.

- Note 1 to Regulation 8 states that an agency Chief Executive may require that Regulation 9 approval and Regulation 10 agreement be secured in a particular order in their agency. This may be done through CEIs, through agency guidelines or delegations/directions.

5. Regulations 9 and 10 establish important financial framework obligations with which an agency must comply. Officials involved in developing or negotiating arrangements are therefore obligated not to take action that could pre-empt or restrict the decisions which approvers are required to make under Regulation 9, and which the Finance Minister (or the Finance Minister’s delegates) may need to make under Regulation 10.

6. It follows that officials developing or negotiating arrangements should be careful to avoid action that would give rise to expectations that a spending proposal has been, or will be, approved until the Regulation 9 decision, and if applicable, the Regulation 10 or 10A decision has been made.

7. A range of activities may amount to an arrangement. Care should be taken to establish whether they require approval under Regulation 9 and, if applicable, agreement under Regulation 10. In particular, agencies should carefully consider whether the following activities may effectively give rise to a commitment of public money:

- release of request for tender documents;

- approval of ‘heads of agreement’, ‘letters of intent’ and other documents that set out the details of future agreements, for example, pre-lease arrangements;

- approval of standing offers that contain spending commitments, such as minimum spend clauses, early termination fees or other guarantees; and

- firm and/or highly detailed undertakings given in correspondence, or through other means.

8. A proposed change to a spending proposal before an arrangement is entered into or an amendment to an arrangement, such as a contract variation, will give rise to a new spending proposal, unless the change fits within the scope of the existing Regulation 9 approval, and if applicable, the Regulation 10 agreement.

- A new spending proposal will trigger the requirements of the Regulations.


1. Do I need a delegation for Regulation 8?

No. Regulation 8 does not provide the authority to enter into an arrangement or approve a spending proposal. It is in effect a gateway specifying that other Regulations must be complied with before an arrangement is entered into. A Chief Executive or their delegate would usually enter into arrangements under section 44.



2. Can I enter into an arrangement under Regulation 8 or Regulation 9?

No. Arrangements are entered into under the authority of your Chief Executive, usually through a section 44 delegation.

3. Are there any circumstances under which I am able to enter into an arrangement without satisfying the requirements of Regulation 8?

Yes. Not every situation where public money is spent will be an arrangement for the purposes of Regulation 8. For example, there is no arrangement associated with the payment of a social security benefit to a person who has a statutory entitlement. In addition, some situations, such as employment decisions, are excluded from the definition of arrangement (see Regulation 3).

Beyond that, there is no general exemption from the FMA Act and Regulations, as these requirements apply when entering into any arrangement under which public money is payable, or may become payable.

There are, however, limited specific circumstances where the operation of other legislation may override the operation of the FMA Act.

Instances where the FMA Regulations cannot operate concurrently with other specific legislation are rare. Agencies should be cautious when considering not applying the Regulations to a decision to commit public money and should be aware that other requirements of the FMA Act and Regulations may continue to apply, including section 44 and the requirements in relation to drawing rights.

4. How could a request for tender constitute a commitment of public money?

A request for tender that provided for the Commonwealth to meet certain respondent costs associated with the tender process would amount to a commitment of public money. The key test of whether a commitment of public money has been made is whether the Commonwealth is able to cease the tender process without the expenditure of public money.

5. What is the difference between a policy announcement and a commitment of public money?

A policy announcement sets out the Government’s intention to do something and may discuss the scope of its plans, often in detail. A policy announcement generally precedes the activities which formally commit public money, such as an exchange of letters. In contrast, a commitment of public money actually binds the Commonwealth to paying public money.

6. Is Regulation 8 triggered by the establishment of a grants program or by a request for grant funding applications?

No, because these actions do not generally create a commitment. Regulation 9 approval and, if required, Regulation 10 agreement should be timed to take place prior to entering into an arrangement or commitment, for example, a grant funding agreement. However, Regulation 9 approval and Regulation 10 agreement should be provided as soon as sufficient information is available. It would also be prudent to consult with the relevant delegate prior to requesting applications, to ensure that all requirements for the delegate to provide the Regulation 9 approval and, if required, Regulation 10 agreement will be met.



7. What are the implications for Regulation 8 of the changes to the definition of an arrangement (in Regulation 3) relating to the engagement of employees?

The definition of arrangement was amended to provide greater clarity on its coverage by specifically excluding matters that should not be considered under Regulation 9 or 10. These matters are the:

- engagement of employees; - appointment of statutory office holders;- acquisition of particular property or services, under a general arrangement with

the supplier of that property or those services, for the purposes of providing a statutory or employment entitlement; and

- entering into an international agreement governed by international law.

There has never been an intention for the engagement of employees, the appointment of statutory office holders, or international agreements subject to international law, to be treated as arrangements and to be approved in accordance with Regulations 9 and 10. The new definition simply clarifies the intent of the Regulation.

There has been some doubt over the extent to which Regulations 9 and 10 apply to the provision of statutory or employment entitlements under a general or 'head' arrangement, such as the Executive Vehicle Schemes (EVS). Specifically, it has not been clear whether the approval process under Regulations 9 and 10 applies only to the general arrangement or applies also in relation to each particular service or item of property (for example, in the case of the EVS, each vehicle) acquired under the general arrangement. The definition of arrangement clarifies that the acquisition of particular property and services, in such circumstances and for such purposes as providing a statutory requirement, does not constitute an arrangement for the purposes of the Regulations. Accordingly, the Regulation 9 and 10 process does not apply in relation to such acquisitions.

However, the general or 'head' arrangement is an arrangement, for the purposes of the Regulations, will be subject to the Regulation 9 and 10 process, as required by Regulation 8.

While Regulation 8 does not apply to employment decisions or the appointment of statutory office holders, if a separate indemnity is provided to an employee or office holder, it will be an arrangement to which Regulation 8 applies.

8. How does Regulation 8 apply to a simple procurement?

A procurement contract is an arrangement under which public money is payable, therefore Regulation 8 is triggered. After selecting a potential supplier in line with the Commonwealth Procurement Guidelines:

- a Regulation 9 approver should consider the spending proposal. The approval can be given verbally or in writing; and

- if there is not enough available appropriation to cover expenditure that might become payable under the arrangement, then Regulation 10 agreement must be obtained if regulation 10 A is not applicable.

There is no particular order in which Regulation 9 approval and Regulation 10 agreement, if relevant, needs to be obtained. However, you may only enter into an



arrangement (i.e. the contract) after Regulation 9 approval and 10 agreement, if relevant have been obtained.

If the Regulation 9 approval was given verbally, then Regulation 12 requires that the terms of the approval be recorded in writing as soon as practicable.

Once the requirements of Regulation 8 have been met, the arrangement (i.e. contract) can be entered into under section 44 of the FMA Act.

9. How does Regulation 8 apply to a simple grant?

A grant funding agreement is an arrangement under which public money is payable, therefore, Regulation 8 is triggered.

After selecting a potential grant recipient:

- a Regulation 9 approver should consider the spending proposal. The approval can be given verbally or in writing; and

- if there is not enough available appropriation to cover expenditure that might become payable under the arrangement, then Regulation 10 agreement will need to be obtained.

There is no particular order in which Regulation 9 approval and Regulation 10 agreement, if relevant, need to be obtained. However, you may only enter into an arrangement after Regulation 9 approval and 10 agreement, if relevant have been obtained.

If the Regulation 9 approval was given verbally, then Regulation 12 requires that the terms of the approval be recorded in writing as soon as practicable. In the case of a grant, Regulation 12 also requires that the basis on which the spending proposal was approved be recorded in writing. The requirements of Regulation 9, that there is a proper use of resources that is not inconsistent with the polices of the Commonwealth, should be recorded. This also means that an approver must record the substantive reasons for the approval, in addition to the factual terms of the approval1.

Once the requirements of Regulation 8 have been met the arrangement may be entered into under section 44 of the FMA Act.

1 See Commonwealth Grant Guidelines, paragraph 3.13(a)


http://www.finance.gov.au/publications/fmg-series/docs/FMG23_web.pdf

An approver must not approve a spending proposal unless the approver is satisfied, after making reasonable inquiries, that giving effect to the spending proposal would be a proper use of Commonwealth resources (within the meaning given by subsection 44 (3) of the Act).

Note 1: When this note commenced, subsection 44 (3) of the Act defined proper use to mean efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth.

Note 2: A spending proposal may be approved at any time prior to entering into the arrangement, and may be approved well before the arrangement is entered into. At the time the spending proposal is approved, the expectation is that an arrangement or arrangements will be entered into, consistent with the terms of the spending proposal.

Note 3: Approvals may be given subject to conditions.


2.1.3 Regulation 9 - Approval of spending proposals

Commentary

1. Regulation 8 requires that Regulation 9 be complied with before entering into an arrangement (Regulation 8 is discussed further in Part 2.1.2 of this circular).

2. An approver is defined in Regulation 3 as a Minister or a Chief Executive, including a Chief Executive’s delegate. An approver may consider and approve spending proposals under Regulation 9. A person may also be authorised to approve proposals to spend public money under legislation other than the FMA Act.

3. A spending proposal is defined in Regulation 3 as a proposal that could lead to entering into an arrangement. Regulation 3 defines an arrangement as an arrangement, including a contract or agreement, under which public money is payable or may become payable.

4. As discussed in Part 2.1.2, a spending proposal is, in essence, a proposition considered by an approver, whether orally or in writing, and Regulation 8 requires the approver to apply the test set out in Regulation 9. If the test is satisfied, the spending proposal may be approved, opening the way for a person to enter subsequently into an arrangement, for example, by signing a contract.

5. Regulation 9 establishes a single test, comprising a number of elements, which must be applied by an approver. In applying the test, an approver must balance the various elements in order to determine whether the spending proposal, if given effect, would be a proper use of Commonwealth resources.

6. Proper use is defined in section 44 of the FMA Act as efficient, effective, economical and ethical use of Commonwealth resources that is not inconsistent with the policies of the Commonwealth (section 44 is discussed further in Part 2.1.1 of this circular).

7. Under Regulation 9, one of the obligations on an approver is ‘making reasonable inquiries’. What are reasonable inquiries to satisfy an approver will depend on the nature and context of the spending proposal. An approver needs to exercise judgement, taking into consideration the nature, significance and value of the spending proposal and any associated risks. The approver should marshal sufficient information to make a defensible decision.

- The primary meaning of 'inquiry' is an investigation into a matter. Accordingly, as a matter of ordinary language, Regulation 9 requires an approver to investigate reasonably whether the proposed expenditure would be a proper use of public



money. The reference to reasonable inquiries indicates that there are limits to the extent to which approvers need to satisfy themselves that proposed expenditure would involve a proper use.

- Regulation 9 does not require external inquiries to be made where approvers, in the absence of any such inquiries, can satisfy themselves that giving effect to the spending proposal would be a proper use of public money. For example, an approver who receives a written or oral briefing on a spending proposal is able to rely on that briefing and need not make additional inquiries, if the briefing appropriately addresses the matters required under Regulation 9.

8. Regulation 9 does not prescribe the wording an approver must use in approving a spending proposal. However, wording such as ‘I approve this spending proposal’ or other language affirming the decision maker’s intention to approve the spending proposal, is considered appropriate in these circumstances to ensure clarity exists that a Regulation 9 approval has occurred.

9. Most commonly, officials obtain the authority to approve spending proposals through a delegation from their Chief Executive. Delegates must comply with any directions provided as part of their Chief Executive’s delegation. In exercising a delegation, officials will be accountable for the decisions they make. They should ensure they are fully aware of the statutory obligations associated with their decisions and any other relevant guidance.

- A Chief Executive may also delegate to an official the power to issue a delegation in relation to Regulation 9 (see Regulation 26(1)(a)). A Chief Executive should carefully consider to who they delegate this power. It would be appropriate to consider limiting such a delegation to the CFO or other senior official/s.

10. Where a Minister is exercising the role of an approver for the purposes of Regulation 9, the relevant agency should take appropriate steps to advise their Minister of the legal requirements established by the FMA Regulation.

- In the case of grants, the CGGs (see paragraph 3.23) provide that agencies are responsible for advising Ministers on the requirements of the CGGs and must take appropriate and timely steps to do so where a Minister exercises the role of an approver in grants administration.

11. Regulation 9 approval is made at the point when the person with the necessary authority, whether a Minister, Chief Executive or a delegated official, actually approves key elements of the spending proposal for later incorporation into an arrangement. It is therefore essential to avoid confusion and clearly determine who the Regulation 9 approver will be for a particular spending proposal, since the approver is the person who will be accountable for that decision. If the authority to approve key elements of a spending proposal is spread across different levels of decision-making, it may be necessary to adjust and consolidate the decision-making process to ensure that the Regulation 9 approver can be clearly identified in each case.

12. Ideally, Regulation 9 approval should be sought as soon as there is sufficient information available to consider the spending proposal. It may therefore be appropriate to consult with an approver in the early stages of an activity that may result in a commitment to spend public money.



13. Note 2 to Regulation 9 highlights the need for an arrangement to be entered into consistent with the terms of the spending proposal actually approved by an approver. This note also clarifies that the approval of a spending proposal indicates an expectation that an arrangement will be entered into.

14. Note 3 highlights that a spending proposal may be approved subject to conditions that must be complied with by those who subsequently enter into an arrangement, such as, by signing a contract or agreement.


1. Does Regulation 10 agreement need to be sought prior to Regulation 9 approval?

No. Regulation 8 does not mandate an order in which they must occur. However, Regulation 9 approval and, if required, Regulation 10 agreement must be sought prior to entering into an arrangement.

(See Part 2.1.2 of this circular for more information).

2. What policies do I need to check for the purposes of Regulation 9?

This will vary depending on the nature of the spending proposal. Approvers should make reasonable inquiries to ensure that they comply with relevant policies and should take care to comply with general financial policies of the Commonwealth and any relevant new policies introduced by the government of the day.


3. Am I approving a proposal under Regulation 9 when I sign the contract?

No. Approving a spending proposal under Regulation 9 is a different action to signing a contract (i.e. entering into an arrangement) under section 44. The act of approving a spending proposal involves an accountable decision maker satisfying the requirements of Regulation 9. This must occur before actually entering into an arrangement under section 44, such as signing the contract.

4. Can Regulation 9 approval, or Regulation 10 agreement, be given retrospectively?

No. Once an agency enters an arrangement, it is not possible to reassess the circumstances surrounding the arrangement against the FMA Regulations, even if Regulation 9 approval and Regulation 10 agreement were given incorrectly. Regulation 8 requires that Regulation 9 approval, and if necessary, Regulation 10 agreement, are given before the commitment is entered into. If the agency becomes aware that Regulation 9 approval and/or Regulation 10 agreement were not provided, an instance of non-compliance will need to be reported in the annual Certificate of Compliance to their Minister.

5. Can I amend or vary a spending proposal or arrangement without obtaining another Regulation 9 approval?

No. If a spending proposal is changed before an arrangement is entered into or an arrangement is changed after it has been entered into (for example a contract variation), officials must check whether the change fits within the scope of the existing Regulation 9 approval and, if relevant, Regulation 10 agreement. If the variation is not within the scope of the existing Regulation 9 approval and Regulation 10 agreement,



this will likely constitute a new spending proposal, and a new assessment under the FMA Regulations is required before entering into the arrangement.

6. When varying a spending proposal or arrangement, do I only have to seek Regulation 9 approval to just the part of the spending proposal or arrangement that is to be varied?

A variation to an arrangement generally amounts to a new spending proposal. The new spending proposal must be approved under Regulation 9 before the variation to the arrangement may be signed. If the variation takes effect within the current contract period then the approval of the new spending proposal should take into account: - any remaining expenditure under the original arrangement;- the additional costs associated with the proposed variation;- any other changes to the key terms of the arrangement; and- any other resource implications of the changed terms and conditions of the

arrangement.

If the variation or extension takes effect from a date in the future then the new spending proposal should cover the items listed above from the date of effect.

7. Can an official provide Regulation 9 approval in relation to a spending proposal that relates to another agency’s appropriation?

Yes. There are two options available to do this:

- the agency that is responsible for the appropriation can delegate Regulation 9 approval powers to an official in the administering agency; or

- the affected Chief Executive/s can agree to the use of their agency’s appropriation by another agency, which would allow the administering agency to rely on its own Regulation 9 powers. It is preferable for the agreement to be in writing. The spending proposal will also need to be consistent with the purposes of the funding agency’s appropriation.

(See Part 2.1.1 of this circular (paragraph 14) for further information).

8. What does an approver have to do (or document) to provide a Regulation 9 approval?

A Regulation 9 approver may approve a spending proposal orally or in writing. If the approval is provided orally, Regulation 12 specifies that the terms of the approval need to be documented as soon as practicable. While Regulations 9 and 12 do not prescribe the wording an approver must use in approving a spending proposal, wording such as ‘I approve this spending proposal’, or other language affirming the decision maker’s intention to approve the spending proposal, is considered appropriate to ensure it is clear that a Regulation 9 approval has occurred.

(See Part 2.1.6 of this circular (FAQ 1) for suggestions on what needs to be recorded as the terms of a Regulation 9 approval).

9. Do I need to get Regulation 9 approval before releasing a request for tender?

No, only in some circumstances. Regulation 9 approval should be obtained before releasing a request for tender where releasing it amounts to a commitment to spend public money.

If releasing a request for tender does not amount to a commitment to spend public money, then it will not be necessary to obtain Regulation 9 approval first. However, it



would still be prudent to consult with the Regulation 9 delegate before the tender is released.

(See Part 2.1.2 of this circular (paragraph 7 and FAQ 4) for further information).


If:(a) a person proposes to enter into an arrangement; and(b) the relevant Agency has an insufficient appropriation of money, under the provisions of

an existing law or a proposed law that is before Parliament, to meet expenditure that might be payable under the arrangement;

the person must not enter into the arrangement unless the Finance Minister has agreed, in writing, to the expenditure that might become payable under the arrangement.

Note: In some circumstances the Finance Minister’s agreement will not be required – see regulation 10A.


2.1.4 Regulation 10 – Arrangements beyond available appropriation

Commentary

1. Regulation 8 requires that Regulation 10 must be complied with before entering into an arrangement (Regulation 8 is discussed further in Part 2.1.2 of this circular).

2. Regulation 10 applies to circumstances where the relevant agency has an insufficient appropriation of money, under the provisions of an existing law, or a Bill that is before the Parliament, to meet the full expenditure that might be payable under the arrangement.

3. An ‘appropriation of money’ is an authorisation by Parliament in legislation permitting the Government to draw upon the Consolidated Revenue Fund (CRF). This authorisation is required by sections 81 and 83 of the Constitution. Agencies commonly pay for arrangements from annual departmental appropriations or administered appropriations. Special appropriations, such as Special Accounts, can also be used to pay for arrangements.

4. Officials intending to rely on a proposed appropriation contained in a Bill that is before the Parliament to pay for a spending proposal should consider carefully the potential implications of the Bill not being passed or being amended.

5. Regulation 10 provides that the existing, or proposed appropriation authority must be sufficient to meet expenditure that might be payable under the arrangement. This includes all the costs that the Commonwealth is committing to pay under the arrangement, including the costs of any contingent liabilities.

- However, Regulation 10A provides that a contingent liability will not require Regulation 10 agreement if the contingent liability is assessed as remote and not material (Regulation 10A is discussed further in Part 2.1.5 of this circular).

6. Regulation 10 requires the Finance Minister’s written agreement for expenditure that might become payable under an arrangement with insufficient appropriation. The Finance Minister has delegated the authority to provide agreement under Regulation 10 to all Chief Executives with directions that have the effect of limiting this authority.

- The Finance Minister’s delegation to Chief Executives is available on the Finance website at www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html.





- The Delegation includes directions which must be followed by all Chief Executives and their delegates when exercising powers under the Delegation.

7. Part 3 of this circular provides more detailed information on Regulation 10 and the Delegation, including how to:

- determine when Regulation 10 agreement is required;

- calculate the maximum amount payable under an arrangement;

- work out uncommitted appropriation and forward estimates;

- obtain Regulation 10 agreement from an agency Chief Executive or their delegate; and

- obtain Regulation 10 agreement from the Finance Minister if it is outside the authority of the Chief Executive, or their delegate .

8. Agencies should keep appropriate records of all liabilities, commitments and expenses against appropriations and forward estimates, to enable them to accurately determine whether Regulation 10 agreement is required for an arrangement and, if so, who can provide agreement.

9. Delegates should exercise caution when considering whether to provide agreement under Regulation 10. In particular, multi-year commitments should only be made to the extent needed to achieve government objectives. Overall commitment levels should be managed in a way that retains the Government’s capacity to respond to new, emerging and unexpected demands without recourse to budget supplementation.

10. Regulation 10 agreement does not remove the responsibility of officials, who are considering the proposed arrangement, to be satisfied that other requirements under the FMA Regulations are met, particularly the requirements of Regulation 9.

11. Securing agreement under Regulation 10 only permits the commitment of public money. An appropriation of money is required before payments can be made under an arrangement.

12. Securing agreement under Regulation 10 does not create an appropriation. Nor does it provide funds, or a guarantee of funds, to meet any claims against the Commonwealth. The agency will be required to meet expenditure under the arrangement within current and future appropriations.


1. Does Regulation 9 approval need to be obtained before Regulation 10 agreement?

No. Regulation 8 does not mandate an order in which these approvals must occur. However, Regulation 9 approval and, if required, Regulation 10 agreement must be sought prior to entering into an arrangement.


2. When am I most likely to need Regulation 10 agreement?

The need for Regulation 10 agreement is most likely to arise (but not exclusively) in relation to multi-year arrangements, where the relevant appropriation is an annual appropriation.



3. If Regulation 10 agreement is obtained, does that mean a spending proposal has been approved and an arrangement can be entered into?

No. The process of approving a spending proposal includes the requirement to obtain Regulation 9 approval, which is a separate process. Entering into an arrangement, such as signing a contract or a funding agreement, is also a separate process which occurs under section 44, in the case of agency Chief Executives and their delegates, or under the Constitution, in the case of Ministers.

4. Does Regulation 10 apply to Special Accounts?

Yes. A proposed arrangement triggers the need for Regulation 10 agreement if there is insufficient uncommitted appropriation to meet the full expenditure that might become payable under the arrangement. This applies to all arrangements, regardless of the type of appropriation used for the expenditure.

If you are considering Regulation 10 for any other type of special appropriation, you must consult Finance.

5. Do multiple-year arrangements always trigger the need for Regulation 10 agreement?

No. Annual departmental appropriations and Special Accounts do not lapse at the end of the financial year. Therefore, money standing to the credit of these appropriations is available for spending in future years. If there is sufficient uncommitted appropriation currently available to support the full expenditure that might become payable under an arrangement, Regulation 10 agreement is not required as long as the money is quarantined to fund only commitments under the particular arrangement over the years in which payments fall due.

6. If Cabinet decides on an arrangement, does Regulation 10 agreement need to be sought?

Yes. However, if there is an explicit decision of Cabinet or certain Cabinet committees, the Finance Minister’s delegation to Chief Executives allows a Chief Executive, or a Chief Executive’s delegate, to provide Regulation 10 agreement under subdivision 1.6 of the Delegation, if relevant conditions are met.

7. Can the portfolio Minister or other Minister provide Regulation 10 agreement?

No. The Finance Minister is the only Minister with this power to provide agreement, and has only delegated this power to agency Chief Executives.

Note: For some arrangements that go beyond the forward estimates, the Chief Executive, or relevant agency delegate, cannot provide Regulation 10 agreement unless the responsible portfolio Minister has first consented in writing to the exercise of the Finance Minister’s delegation.

8. Is the need for Regulation 10 agreement always triggered by Deeds of Standing Offer and panel arrangements?

No. If a proposed Deed of Standing Offer contains spending commitments, such as minimum spend clauses, certain contingent liabilities or other guarantees, Regulation 10 agreement will probably be required. Otherwise, it may not be required.

9. Is Regulation 10 agreement always required in relation to clauses in arrangements that limit a contractor’s liability?



No. Agreement is only required where the liability cap creates an obligation to pay, and is therefore a contingent liability, and where Regulation 10A does not apply.


10. My agency proposes to enter into a six-month arrangement with a company that will provide services to eligible people affected by the Smithville disaster. The provision of each type of service by the company will be on the basis of a fixed fee per service provided, as set out in the Schedule to the contract. The number of eligible people who will access the services in the period is unknown and uncapped and, therefore, expenditure under the arrangement is also unknown. Does the proposed arrangement need Regulation 10 agreement?

Whether Regulation 10 agreement is required depends on the appropriation that will support the arrangement. If the arrangement is supported by a special appropriation that covers the full expenditure that might be payable under the arrangement, then Regulation 10 agreement is not required. However, if a limited appropriation, such as an annual administered appropriation, will support the arrangement, Regulation 10 agreement will be required. This is because, while the cost could be estimated, it is not quantifiable, and it is therefore not possible to know if there is sufficient uncommitted appropriation to support the arrangement. On the other hand, if the full amount payable, or the demand for goods or services, under an arrangement is totally at the discretion of the Commonwealth, the arrangement may not require Regulation 10 agreement.

11. We are considering entering into a contract that has a make good clause. Does this clause trigger Regulation 10?

For Regulation 10 purposes, any contract clause that increases the potential cost of the arrangement in a way that is outside the agency’s control should be considered a contingent liability. Make good clauses are an example of clauses that potentially trigger the need for Regulation 10 agreement. If you determine that your particular clause is a contingent liability for Regulation 10 purposes, first consider if Regulation 10A means that the arrangement does not require Regulation 10 agreement. That is, if the most probable expenditure under the contingent liability is remote and not material, as defined in Regulation 10A, the make good clause in your proposed contract will not trigger the need for Regulation 10 agreement.

12. Can Regulation 10 agreement be given for a group of arrangements? For example, cleaning services at multiple locations.

Generally, it would be possible for a delegated official to provide agreement under Regulation 10 that covered, in advance, a number of proposed arrangements. In this case, the group of proposed arrangements would need to relate to a defined period of time, where the conditions and risks of the contemplated arrangements were identical or very similar.

(See Part 3.2.2 of this circular (paragraphs 21 to 26) for further information).

13. Is it possible for my Chief Executive to give Regulation 10 agreement under the delegation in relation to an arrangement that will be supported by more than one departmental item or more than one administered item?



Yes. Schedule 2, Part 1 of the Delegation has been amended to explicitly provide for situations where the Chief Executives of multiple agencies agree, preferably in writing, to cover expenditure jointly under a single arrangement. The expenditure would need to be consistent with the purposes of each agency’s appropriation.

The Delegation provides that if an arrangement relates to more than one item, the requirements of the delegation must be met in relation to each item and if ministerial consent is required to the exercise of the delegation, more than one minister may need to consent.


In addition, if the arrangement consists of or includes a contingent liability, agencies should agree to the apportionment of risk under the contingent liability before entering into the arrangement.

Under Schedule 2, Part 1 of the Delegation a Chief Executive, or delegate, may also provide agreement in relation to arrangements that involve multiple appropriations within an agency.

(See Part 3.2.2 of this circular (paragraphs 16 to 20) for further information on cross-agency activities).

Another option would be for the other agency/ies to delegate Regulation 10 agreement powers to an official in the lead agency.

(See Part 2.1.1 of this circular (paragraph 14) for further information).

14. Is Regulation 10 agreement required in relation to an arrangement that will be supported by more than one appropriation, where there is currently sufficient uncommitted appropriation in total to support the entire expenditure under the arrangement, but not sufficient uncommitted appropriation in any one of the individual appropriations to support expenditure under the arrangement?

No. However, there should be sufficient uncommitted amounts available in each appropriation to fund that appropriation’s portion of the expenditure.

15. I am about to lease a car under the Fleet Management Agreement. Do I need to obtain Regulation 10 agreement in relation to the lease?

No. The Finance Minister has provided overarching agreement under Regulation 10 for cars leased under the Fleet Management Agreement up to 31 January 2013. This means that agencies do not have to obtain Regulation 10 agreement in relation to vehicle leases entered into under the Fleet Management Agreement before this date.

The Finance Minister’s Delegation in relation to Regulation 10 only relates to purchases of vehicles under the Fleet Management Agreement. This means that if an agency is entering into a vehicle purchase arrangement under the Fleet Management Agreement, a delegate within the agency may provide Regulation 10 agreement in relation to that arrangement.

The Finance Minister has also provided section 12 authorisation for the Fleet Management Agreement. This means that the proceeds of sale and fees associated with auctioning fleet vehicles can be handled by the auctioneers and the fleet monitoring body.


(1) If:(a) an arrangement consists of, or includes, a contingent liability in relation to an event;

and(b) the person proposing to enter the arrangement is satisfied, after making reasonable

inquiries, that:(i) the likelihood of the event occurring is remote; and

(ii) the most probable expenditure that would need to be made in accordance with the arrangement, if the event occurred, would not be material;

regulation 10 does not apply to that part of the arrangement.

(2) For subparagraph (1) (b) (i), the likelihood of an event occurring is remote if there is a probability of less than 5% that it will occur.

(3) For subparagraph (1) (b) (ii), expenditure is material if it is at least:(a) an amount specified by the Finance Minister in a legislative instrument for this

paragraph; or(b) if the Finance Minister has not made a legislative instrument under paragraph (a) that

applies to the Agency - $5 000 000.

Note: The Finance Minister may specify an amount for a particular Agency.

Part 2.1.5 – Regulation 10A

2.1.5 Regulation 10A – Contingent liabilities

Commentary

1. Regulation 10A provides that Regulation 10 does not apply where the requirements in Regulation 10A(1) are met in relation to a contingent liability, with the exception of loan guarantees, which are covered separately by Regulation 11.

2. Regulation 10A is aimed at streamlining the requirements that apply to remote and non-material contingent liabilities, such as those involved in venue and car hire.

3. In the context of Regulations 10 and 10A, a contingent liability is a commitment that may give rise to a liability as a result of a future event. Indemnities, guarantees, warranties and letters of comfort are examples of items that may give rise to a contingent liability. A liability cap may also give rise to a contingent liability.

- A contingent liability is ultimately a risk transference mechanism which results in the Commonwealth accepting risks and the other party bearing less risk. The Commonwealth can enter into an arrangement containing a contingent liability with any party other than itself.

- Financial Management Guidance No. 6: Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort sets out the Australian Government policy on contingent liabilities. It can be found at http://www.finance.gov.au/publications/finance-circulars/2003/02.html.

4. A contingent liability will not trigger the need for agreement under Regulation 10 if the person who is proposing to enter into an arrangement is satisfied, after making reasonable inquiries, that the contingency event is both ‘remote’ and also that, if the event did occur, the ‘most probable expenditure’ would be non-material.

- Regulation 10A defines remote as a probability of less than 5% that it will occur.


http://www.finance.gov.au/publications/finance-circulars/2003/02.html


- Regulation 10A defines ‘material’ as $5 million if the Finance Minister has not specified another amount in a legislative instrument. Agencies should contact Finance if they wish to discuss whether a specified amount would be appropriate in their situation, as agencies need to make a case to the Finance Minister to request a specified amount.

- A person needs to make reasonable inquiries to determine the remoteness and materiality of the contingent liability. An inquiry is an investigation into a matter. As a matter of ordinary language, Regulation 10A simply requires a person to reasonably investigate whether the proposed arrangement contains a remote and non-material contingent liability. The reference to reasonable inquiries indicates that there are limits to the extent to which persons need to satisfy themselves but an investigation is still required.

5. If a Chief Executive considers that an amount lower than $5 million is more appropriate for officials in his/her agency to consider, then the Chief Executive may issue guidance that directs staff to seek additional approvals in circumstances where amounts are less than $5 million. This could, in effect, be similar to Regulation 10 agreement but would be an internal approval.

6. When determining, for Regulation 10A purposes, the most probable expenditure that would need to be made in accordance with an arrangement containing a contingent liability, the potential proceeds of insurance must not be taken into account.

- Arrangements containing contingent liabilities are entered into by agencies on behalf of the legal entity of the Commonwealth. The availability of insurance to cover a contingent liability may not reduce the most probable expenditure that would need to be made (under an arrangement) by the Commonwealth as a whole - whether by an agency directly, by Comcover (which is part of the Commonwealth) or potentially from the Budget.

- Moreover, it cannot be assumed that a claim on an insurance policy will result in a payment by an insurer under a policy.

7. While the FMA Regulations do not require a decision relying upon Regulation 10A to be recorded in writing, it would generally be appropriate for a person relying upon Regulation 10A to make a written record, as a means of demonstrating compliance with Regulation 8. The existing processes under Regulations 9, 10 and 12 generally provide an opportunity for a person relying on Regulation 10A to record, in writing, this reliance.

8. Regulation 11 explicitly excludes loan guarantees from the operation of Regulation 10A.

- Under Regulation 11, a loan guarantee on behalf of the Commonwealth may only be entered into when the spending proposal for the guarantee has been approved under Regulation 9, written agreement has been given under Regulation 10 (where required) and the Finance Minister has provided written approval for the giving of the guarantee.




1. Who should determine if Regulation 10A applies and that Regulation 10 agreement is not required?

The person within the agency proposing to enter the arrangement, usually the section 44 delegate, can make the judgement whether Regulation 10A applies, and therefore removes the need for Regulation 10 agreement. This judgement should be based on reasonable inquiries that the contingent liability is remote and non-material in nature.

2. If the arrangement is more than just a contingent liability, does Regulation 10A apply?

Regulation 10A can apply to part or all of an arrangement. If an arrangement contains a contingent liability, and that contingent liability is not material and is remote, then Regulation 10 does not apply to the contingent liability. However, the rest of the arrangement will also need to be considered under Regulation 10. In this case, the Regulation 9 or 10 delegate should still be made aware of the contingent liability, so that they have full knowledge of all risks associated with the arrangement.

3. The arrangement contains multiple contingent liabilities. How does Regulation 10A apply?

You should consider each contingent liability in the arrangement against Regulation 10A individually. If the arrangement has a number of contingent liabilities, for example three different indemnities, then the requirements of Regulation 10A need to be considered for each indemnity individually.

4. I have decided that a contingent liability falls under Regulation 10A. What happens if it is called upon?

Regulation 10A does not provide an appropriation. If a contingent liability is called upon, an agency will have to meet the cost from the relevant appropriation, or their departmental appropriation. If a contingent liability is called upon and if you believe that you cannot cover the cost from the relevant appropriation or your departmental appropriation, please contact your Agency Advice Unit in Finance.

5. Do I need a delegation to use Regulation 10A?

No. Regulation 10A is not a power that can be delegated. However, a section 44 delegate who is contemplating entering an arrangement that includes a contingent liability, must be satisfied, after making reasonable inquiries, that the conditions specified under Regulation 10A are met before deciding that Regulation 10 does not apply to that part of the arrangement.

6. Should I undertake a formal risk assessment to determine remoteness and materiality for the purposes of Regulation 10A?

Under Regulation 10A, a person needs to make reasonable inquiries to determine the remoteness and materiality of the contingent liability. In deciding what reasonable inquiries should be made, the person should exercise judgement, with a view to marshalling sufficient information to make a defensible decision.

The type of risk assessment process to be adopted for considering a contingent liability should therefore be commensurate with the nature, complexity and the estimated amount of the contingent liability.



Regulation 10A does not require external inquiries to be made or a formal risk assessment2 to be undertaken where a person, in the absence of any such inquiries or assessment, is satisfied that the proposed arrangement gives rise to a remote and non-material contingent liability.

If however, the contingent liability appears to be complex in nature, agencies are encouraged to undertake a risk assessment and document the outcome of the assessment in terms of remoteness and materiality requirements. It would also be prudent to consult with Comcover on any insurance-related requirements applying to contingent liabilities.

7. Our risk assessment for a contingent liability indicates that it is remote (i.e. less than 5% chance of occurring), but there is a 55% chance that expenditure under the arrangement will be less than $5 million, and a 45% chance that the expenditure will be over the $5 million materiality threshold in Regulation 10A. What is the most probable expenditure that would need to be made in accordance with the arrangement?

It is reasonable to assess the most probable expenditure as under $5 million.

2 Documenting the decision and issues considered in relation to remoteness and materiality would reflect good risk management practices.


(1) If approval of a spending proposal has not been given in writing:

(a) the approver must record the terms of the approval in writing as soon as practicable after giving the approval; and

(b) if the spending proposal relates to a grant, the approver must include in the record the basis on which the approver is satisfied that the spending proposal complies with regulation 9.

(2) If:(a) approval of a spending proposal has been given in writing; and(b) the spending proposal relates to a grant; and(c) the approver has not recorded in writing the basis on which the approver is satisfied that

the spending proposal complies with regulation 9;the approver must record that basis in writing as soon as practicable after giving the approval.


2.1.6 Regulation 12 - Recording approval of spending proposal

Commentary

1. Regulation 12(1) recognises that an approval for a spending proposal may be given orally, and requires that the ‘terms’ of such an approval be recorded in writing ‘as soon as practicable’ after giving the approval.

2. An approver needs to be satisfied that the written record of the approval provides appropriate evidence of compliance with Regulation 9. In considering the terms to be recorded, the approver should consider who is going to rely on the record and ensure that the record is proportionate to the significance, value, level of risk and sensitivities associated with the spending proposal.

3. Regulation 12(2) mandates additional recording requirements for grants (i.e. arrangements of the sort defined in Regulation 3A). In the case of grants, there is a need to record the ‘basis’ of an approval, in addition to the terms of the approval.

- The CGGs provide that the basis of an approval means the ‘substantive reasons’ for the approval (see CGGs, paragraph 3.13(a)).

- In recording the basis of an approval, an approver must therefore record the substantive reasons for being satisfied that the proposal satisfies the requirements of Regulation 9.

- In cases where an approval has been given in writing for the purposes of Regulation 9 but the basis of the approval has not been recorded in writing, the approver must record the basis in writing as soon as practicable after giving the approval.

4. The requirement to record the terms and/or basis of an approval as soon as practicable is intended to provide approvers with a degree of practical flexibility. An approver is expected to make a record within available means and resources while also doing so in a timely manner.

5. Agencies should be mindful of the possible need to record decisions where the delegate has decided to not proceed with certain commitments to spend public money. While this is not an explicit requirement of the Regulations, the general requirements of transparency and accountability suggest that it would be appropriate to keep a record



in cases where a decision has been made to not proceed with a significant commitment to spend public money which had previously been approved under the Regulations.


1. What should I record as the terms of the approval?

An approver should consider detailing the following in the record of approval:

- the source of authority to act as an approver;

- the key elements of the spending proposal, such as the item, cost, parties, timeframes and any risks associated with the proposal;

- any conditions on the approval, such as timing, compliance with section 12, where applicable, including information about the section 12 authorisation;

- contingent liabilities (including those covered under Regulation 10A);

- any risk assessment of the contingent liabilities and other information relating to compliance with the policy in Financial Management Guidance No. 6: Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort (see Parts 2.1.2 and 2.1.5);

- compliance with Regulation 10 (where applicable), including information about available uncommitted appropriation or Regulation 10 agreement;

- if applicable, details of the Finance Minister’s approval under Regulation 11;

- compliance with the CPGs or CGGs, if relevant;

- compliance with any relevant policies under Regulation 9; and

- whether subsequent processes or approvals may be necessary.

2. What is an example of as soon as practicable?

As noted in paragraph 4 above, as soon as practicable, is intended to provide approvers with a degree of flexibility. An approver is expected to make a record within available means and resources, while also doing so in a timely manner.

An example of as soon as practicable, could be when an official arrives back at the office after verbally approving a spending proposal whilst not in the office. It would be difficult to show compliance with Regulation 12 if an approval was documented at a time significantly later than when the approver returned to the office where there had been ample opportunity to provide the written approval. As soon as practicable may also be promptly after approving a spending proposal during the course of a telephone call.

3. Must an approval under Regulation 12 be recorded on paper?

No. A document for the purposes of Regulation 12 need not be a record made on paper. The document could be a signed brief or minute, an email, an electronic approval within an information system and a signed purchase order or purchase order request (see section 25, Acts Interpretation Act 1901). For minor proposals, such as a taxi fare, a vendor statement/receipt (for example, a Cabcharge receipt) would suffice.



4. I forgot to obtain Regulation 9 approval. Can I approve the spending proposal under Regulation 12?

No. Regulation 9 requires an approver to be satisfied, after making reasonable inquiries, that giving effect to the spending proposal would be a proper use of Commonwealth resources. Regulation 9 regulates the approval of the spending proposal, whereas Regulation 12 regulates the recording of that approval. If the arrangement has not yet been entered into, then Regulation 9 approval may still be sought for the spending proposal. However, if the arrangement has already been entered into, it is not possible to give Regulation 9 approval after the event, and an instance of non-compliance will need to be reported in the annual Certificate of Compliance to their Minister.

5. Is any additional information required to be recorded where a spending proposal relates to a grant?

Yes. Where the spending proposal relates to a grant, Regulation 12 contains the additional requirement to record the basis of an approval and the terms of the approval. In recording the basis of an approval, an approver must record the substantive reasons for the approval and the factual terms of the approval. The recorded reasons must demonstrate the approver’s consideration of the requirements of Regulation 9 and the basis on which the approver was satisfied that each of these requirements has been met.

6.


Part 2.2 – Grants, procurements and arrangements with outsiders

2.2 Grants, procurements and arrangements with outsiders


Regulation 7: Officials must act in accordance with the Commonwealth

Procurement Guidelines (CPGs)Is the arrangement a procurement? If so,

Comply with the CPGs

Regulation 7A: Officials must act in accordance with the Commonwealth

Grant Guidelines (CGGs)

Is the arrangement a grant as defined in Regulation 3A? If so,

Comply with the CGGs

Section 12: Arrangements for the receipt, custody or payment of

public money by 'outsiders'

Will the arrangement involve an outsider handling public money? If so,

Put in place an agreement authorised under section 12

ORAn allocated official situation will arise

Officials should make reasonable inquiries to ensure that they comply with any other relevant Commonwealth policies which may be applicable when considering a spending proposal

(1) The Finance Minister may issue guidelines (to be called Commonwealth Grant Guidelines) in relation to grants administration, including: (a) grant policies and processes; and(b) requirements regarding the publication of grant details; and (c) requirements regarding entering into grants.

(2) An official performing duties in relation to grants administration must act in accordance with the Commonwealth Grant Guidelines.

Part 2.2.1 – Regulation 7 (procurement) and Regulation 7A (grants)

2.2.1 Regulation 7 - Commonwealth Procurement Guidelines (CPGs)


(1) The Finance Minister may issue guidelines (to be called Commonwealth Procurement Guidelines) in relation to procurement, including: (a) procurement policies and processes; and(b) requirements regarding the publication of procurement details; and (c) requirements regarding entering into procurement arrangements; and(d) the disposal of public property.

(2) An official performing duties in relation to procurement must act in accordance with the Commonwealth Procurement Guidelines.


Regulation 7A - Commonwealth Grant Guidelines (CGGs)

Commentary

1. The CPGs and CGGs are legislative instruments (see section 64 of the FMA Act) which establish the core requirements for all agencies and their officials when performing duties in relation to procurement and grants administration respectively.

2. Regulation 7 and Regulation 7A require officials who perform duties in relation to procurement or grants administration to act in accordance with the CPGs and CGGs respectively. Particular care should be taken to ensure that the mandatory requirements of the CPGs and CGGs are complied with.

3. As the CPGs and CGGs are policies of the Commonwealth, their requirements must be observed to ensure full compliance with the financial management framework requirements relating to proper use of Commonwealth resources (see Part 2.1.1 for further information).

- Under section 44, a Chief Executive will promote proper use of Commonwealth resources by taking steps to ensure that officials act in accordance with the CPGs and CGGs when performing duties relating to procurement and grants administration. These steps may include the release of CEIs, operational guidance and other instructions or procedures.

- Under Regulation 9, approvers must take reasonable steps to satisfy themselves that the CPG and CGG requirements have been complied with when assessing whether a spending proposal is in accordance with the policies of the Commonwealth.

4. In addition, the CGGs provide that agencies are responsible for advising Ministers on the CGG requirements and must take appropriate and timely steps to do so, where a Minister undertakes the role of an approver (for the purposes of Regulation 9) in grants administration (see the CGGs, paragraph 3.23).

5. Further questions on the CPGs should be directed to [email protected].

6. Further questions on the CGGs should be directed to [email protected].


1. What is procurement?

Procurement encompasses the whole process of acquiring property or services.


mailto:[email protected]



(See Part 2 of the CPGs for further information).

2. What is a grant?

Regulation 3A defines the term ‘grant’ for the purposes of the FMA Regulations.

(See the CGGs for further information).

3. Is there any discretion involved in applying the CPGs and CGGs?

The CPGs and CGGs are legislative instruments and their mandatory requirements must be complied with. Obligations that must be complied with in all circumstances are denoted by the use of the terms ‘must’ or ‘mandatory’ in the CPGs and CGGs.

The CGGs also contain guidance on sound practice, which is denoted by the use of the term ‘should’.

4. Does an approver, for the purposes of Regulation 9, need to be satisfied that CPG/CGG obligations have been complied with when assessing whether a spending proposal is in accordance with the policies of the Commonwealth?

Yes. The CPGs and CGGs are policies of the Commonwealth for the purposes of Regulation 9.

5. Should an agency’s CEIs be considered in conjunction with the CPGs and CGGs?

Yes. The CPGs and CGGs establish the framework within which agencies determine their own specific administrative practices, which are generally communicated through CEIs.

However, under Regulation 26A, an agency Chief Executive must not issue an instruction that is inconsistent with the FMA Act, the Regulations or the Finance Minister’s Orders.

6. Can a Minister be an approver of a spending proposal relating to a grant? If the Minister is approving a grant, are there any additional processes that must be undertaken before the grant is approved?

Yes. An approver, in relation to a spending proposal, including a grant, is defined in Regulation 3 to include a Minister. All approvers must comply with the Regulations. The CGGs contain a mandatory requirement that agencies must take appropriate and timely steps to advise a Minister of the requirements of the CGGs where the Minister undertakes the role of an approver in grants administration.

(See the CGGs, paragraph 3.23 for further information).


(1) An official or Minister must not enter into an agreement or arrangement for the receipt, custody or payment of public money by an outsider unless:

(a) the Finance Minister has first given a written authorisation for the agreement or arrangement; or

(b) the agreement or arrangement is expressly authorised by this Act or by another Act.

Penalty: Imprisonment for 7 years.Note: Chapter 2 of the Criminal Code sets out the general principles of criminal

responsibility.

(2) An outsider commits an offence if:

(a) the outsider receives or has custody of public money under an agreement or arrangement mentioned in subsection (1); and

(b) the outsider makes a payment of the public money; and(c) that payment is not authorised by the agreement or arrangement.

Penalty: Imprisonment for 2 years.Note: Section 27 allows a drawing right to be issued to an official or a Minister to debit

an amount against an appropriation (as a result of a payment of public money by an outsider).

(3) In this section: outsider means any person other than the Commonwealth, an official or a Minister.


2.2.2 Section 12 - Receipt and spending of public money by outsiders

Commentary

1. Before entering into any arrangement or agreement, it is important to establish whether an ‘outsider’ could be handling public money, whether deliberately or accidently, and determine if it is appropriate for them to do so.

2. An outsider is any person other than a Minister or an official, as defined in section 12 of the FMA Act. An outsider may include any third party involved in an arrangement with the Commonwealth for the provision of goods or services, including administrative or management services undertaken for the Commonwealth.

3. Public money, as defined in section 5 of the FMA Act, is a broad concept and it is not uncommon for outsiders to handle public money, sometimes inadvertently. Public money means:

- money in the custody or under the control of the Commonwealth; or

- 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.

4. Public money includes Australian currency, bankable 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 and money found on Commonwealth premises is also public money.

5. The ‘custody’ of public money includes any possession or handling of that money, however briefly, whether physically or in a bank account. Therefore, any person authorised through legislation or an arrangement to act on the Commonwealth’s behalf (for example, to collect fees or levies or to make payments) is considered to be handling public money. To have custody of public money is to manage that public money and this is a ‘financial task’ as defined by Regulation 3.

6. The ‘control’ of public money is essentially the power to decide how it is managed and spent. This includes the power to decide who will receive the money, when they will receive it, what it will be spent on, and any related reporting/acquittal requirements. In cases where another party is acting on behalf of the Commonwealth, the right to veto that party’s decisions is likely to amount to control by the Commonwealth. Control of public money is also a financial task as defined by Regulation 3.

7. If a person other than a Minister or agency official (i.e. an outsider) is to deal with public money or property, it is important to decide how to regulate that person’s activities in relation to the public money or property. The default position under the FMA Act and Regulations is that an outsider who performs a financial task, as defined by Regulation 3, in relation to public money is deemed to be an ‘allocated official’ of the agency. Alternatively, an agency may enter into an agreement with the outsider, which is authorised under section 12 of the FMA Act.

- An outsider who performs financial tasks in relation to public money and who is not doing so under an authorised section 12 agreement is deemed to be an allocated official of the agency, in relation to those tasks undertaken, under Regulation 4 or 5 (depending on whether they are doing this for a Department of State or a prescribed agency). This is the case even if the outsider performs such a task accidentally, in passing, or for a short period of time. As an allocated official, an outsider is subject to all the requirements of the financial management framework, including those relating to drawing rights, banking and approvals for committing public money. Outsiders should be made aware of the relevant obligations.

- In contrast, if undertaking tasks under an authorised section 12 arrangement, the outsider is only subject to the specific conditions and requirements of the arrangement. It is therefore essential that the section 12 arrangement establish an appropriate framework for the management of the public money. The outsider is also required to comply with the provisions of section 12 of the FMA Act, including section 12(2), which provides that an outsider commits an offence if unauthorised payments of public money are made.

8. In summary, potential risks arise both for agencies and outsiders when outsiders handle public money. It is therefore essential that agencies carefully consider any arrangement that permits outsiders to handle public money.

9. In order to comply with section 12 a number of steps must be followed:

- there must be an appropriate arrangement for the receipt/custody/payment of public money by the outsider; and



- the Finance Minister must give written authorisation for the arrangement before it is entered into with the outsider. The Finance Minister has delegated this power to agency Chief Executives.

The delegation is available at http://www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html.

10. Officials managing an arrangement authorised under section 12 with an outsider will need to ensure that the agency meets all of the financial reporting requirements of the FMA Act, Regulations and Finance Minister’s Orders. The agency will still need to account for and report on any public money held by the outsider. In particular, the relevant appropriation will need to be credited when the outsider collects public money, and debited when the outsider makes a payment of public money.

- The terms of the Finance Minister’s Delegation to agency Chief Executives must also be complied with, including the Finance Minister’s direction that any interest on public money received by an outsider must be remitted in full to the Commonwealth. Any interest earned on public money by an outsider is also public money, as the definition of public money in section 5 of the FMA Act includes ‘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’.

11. Similarly, an agency will need to ensure that the requirements of the FMA Act, Regulations and Finance Minister’s Orders are complied with when an agency permits an outsider to operate as an allocated official.


1. What specific issues should I consider when deciding whether to allow an outsider to handle public money and how should this be regulated?

An agency should carefully consider whether it is appropriate for outsiders to handle public money, how the money should be handled, as an allocated official or under a section 12 arrangement, and how to structure the arrangement. Generally, an agency should take care to determine whether the entity, which may be an individual or a company, is well-established with a strong reputation for probity; is capable of satisfying agency reporting requirements; and has robust internal procedures and processes for the handling and accounting for public money. Some specific issues to consider include:

- the volume, value, and nature of the money that the outsider would be handling;

- the level of control that the Commonwealth has or requires over the money;

- the potential for misuse or mismanagement of public money;

- the financial viability of the outsider and the possible risk of insolvency;

- any specific policy issues or government decisions related to an outsider handling public money;

- the appropriation arrangements, such as which appropriation will be debited and credited;





- whether the transactions are of a complicated nature and may be difficult to manage;

- the period, or periods, of time that the outsider will be handling public money;

- the banking and transmission requirements;

- the reporting and audit requirements;

- the risk of a perceived or actual conflict of interest arising;

- whether the transactions may be contentious (e.g. Act of Grace payments);

- the application of any other relevant legislation, for example, legislation that may enable the outsider to collect fees on behalf of the Commonwealth;

- the relevant expertise of the outsider; and

- any other risks associated with having an outsider handling public money.

2. What are the main differences between an outsider handling public money as an allocated official or under an authorised section 12 agreement?

Allocated officials are subject to all of the requirements of the Commonwealth’s financial management framework, including the FMA Act and Regulations, the policies of the Commonwealth and an agency’s CEIs, when they are performing a financial task. A financial task is defined in Regulation 3 as a task or procedure relating to the commitment, spending, management or control of public money. Allocated officials can be issued with drawing rights and financial delegations to enable them to commit and make payments of public money. When receipting and holding public money they must also comply with the banking requirements in the FMA Act and the Finance Minister’s delegation. The need to comply with these requirements should be specified in any arrangement with an outsider whose staff will operate as allocated officials.

In contrast, outsiders who handle public money under an authorised section 12 arrangement are not subject to all of the requirements of the Commonwealth’s financial management framework. They are subject only to the requirements of section 12 of the FMA Act and the terms and conditions set out in the arrangement itself. It is therefore essential to mitigate risk by developing an appropriate arrangement and managing it closely.

3. What matters must be addressed in a section 12 arrangement with an outsider?

The delegation provides a number of directions to Chief Executives and their delegates which must be followed. These directions are as follows:

- duration – the arrangement should be for no longer than five years. An assessment needs to be made of the appropriate duration of an arrangement. This will depend on the need for certainty balanced against the need for flexibility should circumstances change (e.g. price increases or decreases);

- termination – the Commonwealth must be able to give notice to terminate the arrangement at any time;

- banking and remittance arrangements – the arrangement must specify the banking arrangements to be followed by the outsider. The delegation also directs that the arrangement must specify the timing or frequency of remittance of public money to



the Commonwealth or payments to intended recipients. The delegate must be satisfied that the arrangement ensures the money remains in a bank account which is not an official bank account for the shortest period of time that is reasonable in all the circumstances.

The length of time and frequency of remittance must be based on an assessment of the risk of holding public money in a non-official account and the best cash management outcome for the Commonwealth. This must be balanced against any savings or cost advantages made for a longer time or less frequent remittances or payments, together with an assessment of the risks associated with public money being held in a non-official account. If the outsider is to hold public money for any length of time, then the agency should consider specifying that interest should be earned on this money (noting that any interest is public money and must be returned to the Commonwealth in full). The Commonwealth should also have the capacity to seek immediate remittance of all public money;

- interest – the arrangement must specify that any interest earned on public money by the outsider is to be remitted in full to the Commonwealth. Interest earned on public money is also treated as public money; and

- CPGs and CGGs – if the outsider will be engaging in procurement or performing duties in relation to grants administration on behalf of the Commonwealth, then the delegate must be satisfied that the arrangement requires the outsider to comply with the CPGs or CGGs. The particular aspects of the CPGs and CGGs that the outsider should comply with will depend on the functions that the outsider is performing in relation to the procurement or grants administration. Outsourcing functions of government such as procurement or grants administration does not remove the responsibility for an agency to ensure that the requirements of the CPGs or CGGs are complied with.

4. Should any other matters be addressed in a section 12 arrangement with an outsider?

The terms of the arrangement are the key to establishing an appropriate framework for the proper use of public money and property. To minimise the risks to the Commonwealth, an arrangement with an outsider should be carefully drafted to clearly set out how the outsider must manage public money and property, and report on the handling of those resources. An agency should also consider the following issues when establishing an arrangement:

- termination – there should be requirements that all public money, property and relevant records be returned to the agency in a timely way, following termination of an arrangement;

- insolvency/administration – there should be requirements on how the public money and/or property will be dealt with if the outsider becomes insolvent or enters administration;

- accountability – identification of how public money will be held and accounted for separately to other money held by the outsider;

- reporting – reporting arrangements need to be identified, including the frequency and extent of reporting. Reporting needs to be sufficient to allow the agency to meet its obligations under the FMA Act, Regulations and Orders, and for audit



purposes. There is a particular need to ensure that the agency can satisfy its obligation to debit and credit the relevant appropriation and to ensure that accounts and records are kept in a way that records the receipt and expenditure of public money on a daily basis;

- fraud control and risk management – strategies covering the handling of public money and/or property by the outsider should be included in the arrangement and reflected in agency fraud control plans;

- specified individuals – it may be prudent in some circumstances for individuals or positions in the organisation that will be responsible for handling public money to be specified in the arrangement. Procedures for notifying the Commonwealth of changes to these individuals or positions should also be outlined;

- subcontracting – if an outsider is permitted to subcontract, controls should be specified to ensure that the subcontractor does not handle public money, or handles it appropriately. If it is contemplated that subcontractors will be handling public money, this will need to be included in the section 12 authorisation;

- access – the Commonwealth’s right to access all of an outsider’s records relating to public money and/or property needs to be specified, including access by the Auditor-General and for Freedom of Information purposes;

- privacy and security requirements, if applicable;

- criminal penalties – section 12 imposes criminal penalties on the outsider if payments are made that are not authorised by the arrangement. An outsider needs to be aware of these potential penalties and they should be recognised in the arrangement;

- CPG and/or CGG reporting – if the outsider is conducting procurement or is involved in grants administration then they will need to provide the agency with sufficient information to allow the agency to meet the CPG and/or CGG reporting requirements; and

- other legislation – if other legislation is applicable to the arrangement then it should also be specified in the arrangement. For example, an outsider should be alerted to any legislation that may govern the process or task that the outsider is to perform.

5. Do I have to go to the Finance Minister to get a section 12 authorisation?

No. The Finance Minister has delegated this power to agency Chief Executives. A Chief Executive or delegate is therefore able to provide section 12 authorisation in accordance with the directions contained in the delegation.

6. What if an outsider makes a payment that is outside the scope of the authorised section 12 arrangement?

Section 12(2) of the FMA Act provides that:

An outsider commits an offence if:

(a) the outsider receives or has custody of public money under an agreement or arrangement mentioned in subsection (1); and

(b) the outsider makes a payment of the public money; and of 75 Finance Circular 2011/01

Department of Finance and Deregulation


(c) that payment is not authorised by the agreement or arrangement.

Penalty: Imprisonment for 2 years.

7. Do I need to obtain Regulation 9 approval and, if necessary, Regulation 10 agreement to enter into a section 12 arrangement with an outsider?

Yes. The FMA Regulations apply to agreements and arrangements authorised under section 12 of the FMA Act. Regulation 9 approval, and if necessary Regulation 10 agreement, is needed in relation to the entire arrangement with the outsider, including contract fees paid to the outsider and expenditure commitments to be made by the outsider on the Commonwealth’s behalf under the section 12 arrangement. Agencies are responsible for ensuring all payments of public money under a section 12 arrangement are covered by an approval in accordance with the Regulations.

8. Can I outsource work without considering allocated officials and section 12?

No. Agencies should not enter into arrangements without first considering whether outsiders may be handling public money, whether deliberately or inadvertently. The key issues are whether the money will be public money according to the definition in section 5 and, if it will be public money, whether the outsourced provider will perform a financial task in relation to the money as defined in Regulation 3.

9. What are the implications if I wish to enter into an arrangement where the outsider will be an allocated official?

The allocated official will be subject to the same requirements as any other official of an FMA Act agency when they are performing a financial task. This includes the FMA Act, Regulations, Finance Minister’s Orders, the policies of the Commonwealth and the agency’s CEIs. The person operating as an allocated official will need to be made aware of the obligations that these requirements place upon them. It would be prudent to recognise these requirements in the arrangement with the allocated official.

Agencies should consider the following key points when establishing an arrangement involving allocated officials:

- Regulation 9 approval and Regulation 10 agreement – any commitment of public money by an outsider will need to be supported by a Regulation 9 approval and, if necessary, Regulation 10 agreement;

- drawing rights – if allocated officials are making payments of public money, valid drawing rights under paragraph 27(1)(a) are required;

- banking – all public money must be held in an official bank account. Therefore, the agency will need to consider whether to give an allocated official access to an established official account or establish a new official account for a particular arrangement. An allocated official is also subject to the requirement to bank public money promptly;

- reporting – reporting arrangements need to be identified, including the frequency and extent of reporting. Reporting levels need to be sufficient to allow the agency to meet its requirements under the FMA Act, Regulations and Orders, particularly the obligations on an agency to debit and credit the relevant appropriation, and to ensure that accounts and records are kept in a way that record the receipt and expenditure of public money on a daily basis;



- access – the Commonwealth’s right to access all of an allocated official’s records relating to public money needs to be specified, including access by the Australian National Audit Office to the outsider’s premises and records for audit purposes;

- other legislation – if other legislation is applicable to the arrangement then it should also be specified in the arrangement. This might include, for example, legislation that may govern the process or task that the allocated official is to perform;

- subcontracting – if an allocated official is permitted to subcontract, controls should be specified to ensure that the subcontractor does not handle public money, or handles it in accordance with the FMA Act and Regulations;

- specified individuals – individuals or positions in the organisation which will be responsible for handling public money need to be specified in the arrangement documentation. Procedures for notifying the Commonwealth of changes to these individuals or positions should also be outlined;

- fraud control and risk management – strategies covering the handling of public money by the outsider should be included in the arrangement and reflected in agency fraud control plans;

- Chief Executive’s Instructions – the outsider needs to be aware of any relevant CEIs;

- whether the allocated official will be handling public property and the conditions that should be applied; and

- allocated officials should be made aware of the specific liability provisions in relation to the loss or misuse of public money or property contained in sections 14, 15, 41 and 42 of the FMA Act.

10. I didn’t realise that outsiders had custody of public money, what are the implications?

If an outsider handles public money and is not operating under an authorised section 12 agreement, the outsider will automatically become an allocated official. Allocated officials are subject to the requirements of the financial management framework, including the need to:

- promptly bank public money in an official account (sections 10 and 11 of the FMA Act) and not bank public money in any other account, even if specifically established for the purpose;

- have valid drawing rights for any payments of public money (section 26 of the FMA Act); and

- comply with all requirements for the commitment of public money (Regulations 7-12).

If an outsider who is deemed to be an allocated official has not complied with the financial management framework, an agency should carefully consider whether this results in a reportable instance of non-compliance for the purposes of the Certificate of Compliance.

11. Can an agency keep the interest earned by an outsider on public money?



Generally, no. Any interest earned by the outsider must be remitted by the outsider to the Commonwealth and in most cases the agency will need to deposit this money to the Official Public Account.


Part 3 – Workbook - applying the framework

Part 3 Workbook – applying the framework


3.1 Applying the FMA Regulations - examples

3.1.1 Simple spending proposal: catching a taxi p. 493.1.2 Complex spending proposal: standing offer p. 503.1.3 Grant assessed against program guidelines p. 513.1.4 Arrangement that includes an indemnity p. 52

3.2 Using Regulations 10 and 10A

3.2.1 When is Regulation 10 agreement required? p. 533.2.2 The Delegation p. 563.2.3 Worked examples p. 633.2.4 Summary of the Delegation for Regulation 10 p. 693.2.5 Regulation 10 agreement request form p. 71

Part 3.1.1 – Simple spending proposal: catching a taxi

3.1.1 Simple spending proposal: catching a taxiNeed for a spending proposal arises

I need to catch a taxi to go to a meeting

Approval ProcessI know I cannot catch a taxi unless a spending proposal has been approved under Regulation 9.

I know Regulation 10 will not apply because there is available appropriation.

Do I have authority to approve the spending proposal for the taxi service?

YES NO

I have the authority to approve the spending proposal and may hold a credit card or a

Cabcharge card.

I can approve the spending proposal that involves catching a taxi under Regulation 9 provided it is a proper use of public money

and provided the value of the spending proposal is within my delegation and any

financial limits placed on the credit card. I do not need to make a written record of my

approval, but Regulation 12 requires that I document the terms of the approval as soon

as practicable.

I do not have a delegation to approve spending proposals under Regulation 9. I therefore

require a delegate to approve the spending proposal under Regulation 9. I can then be

provided with a Cabcharge voucher or other form of payment from a Regulation 9 delegate

or authorised official.

As required by Regulation 12, the approver records the terms of the approval in an

appropriate manner, consistent with internal agency requirements.

I book/hail the taxi and get in. By getting into the taxi, I am entering into an arrangement of the sort contemplated by

Regulation 8. I have accepted the contractual terms of carriage, under section 44 of the FMA Act, which will result in a commitment to spend public money.

I record the terms of the approval, as required by Regulation 12, by signing and receiving a receipt from the taxi driver and I return the

receipt to my agency.

I sign and take a receipt from the taxi driver and return it to my agency for acquittal.

Back at the office, the receipt provided to me by the taxi driver is reconciled against my credit card statement or Cabcharge invoice and checked by an independent reviewer. If satisfied, they confirm

that it is a legitimate Commonwealth expense.

Public money is payable when the credit card statement or Cabcharge invoice is paid. The person who pays the credit card statement or Cabcharge invoice will need a valid drawing right issued

under FMA Act section 27.

The statement or invoice is paid and the agency has complied with the Regulations and the Act.


Part 3.1.2 – Complex spending proposal: standing offer

3.1.2 Complex spending proposal: standing offer

What is a standing offer?

Standing offers are arrangements where one or more suppliers agree to offer products or services as requests over a period of time. Examples include arrangements with stationery suppliers and legal service

panel arrangements, which also requires compliance with the Legal Service Directions 2005.

I am negotiating a Deed of Standing Offer

A standing offer is an arrangement for the purposes of Regulation 8. Therefore, a Deed of Standing Offer must be approved under Regulation 9 before it is entered into. Where an agency is unable to ascertain the total value of a standing offer arrangement, Regulation 9 approval may be provided for the scope

and purpose of the standing offer arrangement (e.g. the supplier and cost per unit). There is usually no specific commitment of public money under a Deed of Standing Offer until a purchase order or similar

document, is raised under the arrangement. In particular, the approver should consider the specific terms of the Deed of Standing Offer and ensure that the proposed arrangement would be a proper use of Commonwealth resources if purchases are made under the deed. It is important to seek Regulation 9 approval before signing the Deed of Standing Offer as there is usually no opportunity to approve terms and conditions relating to individual purchases made under the standing offer arrangement once the

Deed of Standing Offer has been entered into.

Regulation 10 agreement is generally not necessary for a Deed of Standing Offer, where it does not commit the agency to expenditure and the agency has full control of the orders placed under the deed.

Regulation 10 agreement may be required before approving a Deed of Standing Offer that contains spending commitments, such as contingent liabilities or minimum spend clauses for which there is no appropriation. Regulation 10A may also be relevant if the Deed of Standing Offer contains contingent

liabilities.

A Deed of Standing Offer must be published in accordance with the CPGs, as indicated in Financial Management Guidance No. 15: Guidance on Procurement Publishing Obligations, which is available at

www.finance.gov.au/publications/fmg-series/index.html

I wish to make use of the standing offer arrangement

Entering into the Deed of Standing Offer and utilising the standing offer arrangement are two separate actions for the purposes of the Regulations. Subsequent orders made under the Deed of Standing Offer will be subject to Regulation 9. For example, the Regulation 9 approver is approving the quantity being

ordered as well as ensuring that using the standing offer arrangement in the particular circumstances is a proper use of Commonwealth resources. The order may also be subject to Regulation 10 where the

order is not supported by an available uncommitted appropriation.

Where the expenditure resulting from all the orders to be placed under a Deed of Standing Offer can be accurately estimated, and the relevant appropriation can be identified, it is possible, and it may be

preferable, to include this cost when making the Regulation 9 and 10 decisions in relation to entering into the Deed of Standing Offer. If this approach is taken, agencies must establish processes to ensure that the expenditure does not exceed the terms of those Regulation 9 and 10 decisions. If a spending proposal does exceed the terms of the overarching Regulation 9 and 10 decisions then it will require a

separate Regulation 9 or 10, if relevant, decision.


Part 3.1.3 – Grant assessed against program guidelines

3.1.3 Grant assessed against program guidelines

Government announces a grants program

The government introduces a grants program and grant guidelines to provide financial assistance to local councils to repair park facilities 'most in need of repair'. A council applies to repair two drinking fountains (A and B) in one of its parks. The responsible agency assesses the proposals against the grant program guidelines

and makes a recommendation to an approver, to repair drinking fountain A. The approver is required to consider giving approval under Regulation 9.

The approver considers the supporting documents for the spending proposal and forms a view that drinking fountain B may be more in need of repair than drinking fountain A.

How should the approver interpret the requirements of Regulation 9?

FMA Regulation 9 provides that an approver must not approve a spending proposal unless the approver is satisfied, after making reasonable inquiries, that giving effect to the spending proposal

would be a proper use of Commonwealth resources. Proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth.

It would be prudent and appropriate for the approver to make reasonable inquiries before providing the approval. The approver may wish to seek further advice from the relevant agency officials and examine the relevant documents, including the application for funding and any assessment documents, in so doing. The

approver should also carefully examine the grant program guidelines which are a policy of the Commonwealth, as stated in the CGGs, for the purposes of Regulation 9 to determine whether they have

been applied appropriately.

The approver is required to exercise his/her judgement, on the basis of these reasonable inquiries, as to which spending proposal represents proper use. The approver is acting within his/her power if he/she determines, for Regulation 9 purposes, that the proper use of resources is best achieved by repairs to drinking fountain B and

he/she approves the spending proposal to repair drinking fountain B.

As this is a grant, the approver is then required under Regulation 12 to record both:

a) the substantive basis on which the approver is satisfied that the spending proposal complies with the requirements of Regulation 9; and

b) the factual terms of the approval.


Part 3.1.4 – Arrangement that includes a contingent liability

3.1.4 Arrangement that includes a contingent liabilityI propose to engage a consultant for a period of three months. I am an FMA Act section 44 delegate and can therefore enter into the arrangement. The proposed arrangement would involve a contingent liability as it has

been agreed to indemnify the consultant against certain risks.

Before I consider entering into this arrangementRegulation 8 is triggered because money will be payable under the arrangement:

I know the spending proposal requires approval under Regulation 9. I am a Regulation 9 delegate.I know Regulation 10 will not apply in respect of the consultant’s fees because there is uncommitted

(departmental) appropriation currently available to cover all the fees payable under the contract.I will need to establish whether Regulation 10 agreement is required in respect of the indemnity.

I am not a Regulation 10 delegate.

REGULATION 9 APPROVAL REGULATION 10 AGREEMENT?

Will this spending proposal result in a proper use of Commonwealth resources?

Does Regulation 10A mean the indemnity does not require Regulation 10 agreement?

I must ensure consistency with the Commonwealth’s contingent liability policy as

set out in Financial Management Guidance No. 6: Guidelines for Issuing and Managing

Indemnities, Guarantees, Warranties and Letters of Comfort. This will include identifying the

risks under the indemnity, assessing the likelihood of a risk event occurring and

assessing the most probable cost if a risk event occurs.

I must assess whether the expected benefits from engaging the consultant will outweigh the level and cost of the risk under the indemnity.

I will need to make reasonable inquiries to determine whether:- the likelihood of a risk event occurring is less

than 5% (i.e. remote); and- the most probable expenditure if the event

occurred would be less than $5 million (i.e. not material).

While I assess the likelihood as remote, I assess that the most probable expenditure would be $10 million (i.e. material).

Therefore, Regulation 10 agreement is required.

WHO CAN GIVE REGULATION 10 AGREEMENT?To determine whether my Chief Executive (or agency delegate) can give the agreement, I will

I must make reasonable inquiries to be satisfied that giving effect to the spending proposal

would be an efficient, effective, economical and ethical use of Commonwealth resources. This

assessment will relate to the risks and potential costs under the indemnity, as well as to other aspects of the proposal, such as the ability of

the consultant to perform the required task, the need for the task to be performed and the availability and viability of other options.

need to know whether this arrangement is within the scope of the Finance Minister’s delegation to Chief Executives. That is, whether:

- the (departmental) arrangement has a duration of not more than 22 years; and

- under the indemnity:o the likelihood of a risk event occurring is

less than 5% (i.e. remote); ando the most probable expenditure if the

event occurred would be less than $20 million (not significant) (see Part 2.2.2 paragraph 11 of this circular).

If I assess that engaging the consultant will result in a proper use of resources, I can

approve the spending proposal under Regulation 9.

I must ensure the terms of the approval are recorded as required by Regulation 12, including the decision process relating to the indemnity.

As I have assessed the likelihood as remote and the most probable expenditure as $10 m (not

significant) my Chief Executive, or delegate, can consider giving the agreement and it is not necessary to request agreement from the

Finance Minister.

If Regulation 9 approval and Regulation 10 agreement have been provided, I can enter into the contract under section 44 of the FMA Act.


Part 3.2.1 – When is Regulation 10 agreement required

3.2.1 When is Regulation 10 agreement required?1. The following information is required to determine whether there is insufficient

appropriation of money to meet expenditure that might be payable under an arrangement and therefore whether Regulation 10 agreement is required:

a) the relevant appropriation item or items;

b) the amount of uncommitted appropriation/s; and

c) the maximum amount that might become payable under the arrangement.

Identifying the relevant appropriation item or items

2. In determining whether Regulation 10 agreement will be required, an official may only have regard to available appropriations in an existing law or a proposed law that is before Parliament. These include appropriations provided in the Annual Appropriation Acts and special appropriations in other Acts, including Special Accounts.

3. For the purposes of Regulation 10, appropriations in a proposed law (i.e. a Bill) before Parliament can be treated in the same way as appropriations in an existing law. However, officials intending to rely on such proposed appropriations should consider the potential implications of the Bill being amended or not being passed.

4. Forward estimates are not appropriations and are not relevant when determining whether Regulation 10 agreement is required.

Working out the uncommitted appropriation/s

5. Essentially, the uncommitted appropriation is the existing appropriation amount/s minus the amounts that have already been allocated from the appropriation/s.

6. Agencies need to keep accurate records of liabilities, commitments and expenses against appropriations in order to determine whether Regulation 10 agreement is required.

Calculating the maximum amount payable under the arrangement

7. The maximum amount that might become payable under an arrangement must include the maximum potential cost of the entire arrangement. This includes:

a) variable costs, such as travel costs;

b) the impact of any indexation applicable;

c) the maximum cost of all contingent liabilities over their entire duration, except for contingent liabilities excluded by Regulation 10A. Note that the availability of insurance to cover a particular contingent liability does not reduce the maximum expenditure that might be payable.

8. Agencies should note that amounts for Goods and Services Tax (GST) are generally appropriated through the operation of section 30A, increasing the relevant appropriation item from which the payments are being made. If GST is payable in relation to an arrangement for which a Regulation 10 agreement is required, Regulation 10 agreement should be sought for the entire amount payable, including GST.



Arrangements – specific cases

9. For a multi-year arrangement, the maximum amount that might become payable in each year generally needs to be compared to the amount of uncommitted available appropriation that would be available for each year.

a) Regulation 10 agreement is always required for a multi-year arrangement where the relevant appropriation item is an annual administered appropriation. These appropriations are not available after the end of the financial year and cannot be used to meet future commitments.

b) Regulation 10 agreement is not always required for a multi-year arrangement, where the relevant appropriation item is an annual departmental appropriation, or Special Account. This is because unspent annual departmental appropriations and balances of Special Accounts remain available in future years. Agencies can therefore rely on existing departmental appropriations or Special Account balances to cover the entire amount payable under multi-year arrangements as long as the money is set aside for this purpose. Agencies should be aware that committing existing available appropriations for multi-year arrangements will reduce the level of uncommitted appropriations available for other arrangements. Agencies using this approach need to ensure that the approach is supported by appropriate accounts and records.

10. If a proposed arrangement is uncapped and demand-driven by parties outside the Commonwealth, the maximum amount payable will be unquantifiable and the arrangement will always require Regulation 10 agreement. The exception to this is if the arrangement is supported by a special appropriation that covers the maximum amount that is or may become payable. For example, if the government was to consider an arrangement for the supply of products on demand by parties outside the Commonwealth, the cost of the arrangement would depend on demand. While the cost could be estimated, it is not quantifiable. If that arrangement was supported by a capped appropriation, written agreement from the Finance Minister would be required.

11. Similarly, an arrangement containing an uncapped contingent liability will most probably require Regulation 10 agreement, unless it is supported by an unlimited special appropriation that covers the maximum amount that might become payable under the arrangement, including the contingent liability, or if Regulation 10A applies .

12. Liability caps may also result in the creation of a contingent liability if they create an obligation to pay. A liability cap creates an obligation to pay, and should be treated as a contingent liability, if:

a) it involves limiting a supplier’s liability to a third party so that the Commonwealth is liable to the third party for any excess; or

b) limiting a supplier’s exposure for damage the supplier has suffered itself, so that the Commonwealth is liable to the supplier for any excess.

13. A liability cap does not create an obligation to pay, and should not be treated as a contingent liability, to the extent that it:

a) limits a supplier’s liability to the Commonwealth for damage it directly causes the Commonwealth; or

b) limits a supplier’s liability to the Commonwealth, so that the Commonwealth cannot recover damages from the supplier if the Commonwealth is sued for damages by a third party.



It would be prudent to consult with Comcover on any insurance related requirements applying to liability caps.

14. If an arrangement is extended or varied, officials must ensure that the amendment, extension or variation fits within the scope of the existing Regulation 10 agreement. Otherwise a new assessment under Regulation 10 will be required.


Part 3.2.2 – The Delegation

3.2.2 The DelegationHow to obtain Regulation 10 agreement

1. There are three ways to obtain agreement under Regulation 10.

a) The Delegation: Chief Executives have been delegated the power to provide Regulation 10 agreement, provided the arrangement would be consistent with the directions set out in the Finance Minister to Chief Executives Delegation (the Delegation), available at http://www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html.- Chief Executives may delegate the power to provide Regulation 10 agreement to

an official in their own, or another, agency. That official must comply with the Finance Minister’s directions and any additional directions of the Chief Executive.

- Chief Executives may, separately, delegate to an official the power to issue Regulation 10 delegations (see Part 3, subparagraph 7(4) of the Delegation).

b) Agency-specific determinations: the Finance Minister may make specific determinations to particular Chief Executives that alter the directions in the Delegation, for example by extending the timeframe (see Schedule 2, Part 1, paragraph 1.7).

c) Finance Minister’s agreement: where agreement by a Chief Executive for an arrangement would not be consistent with the directions in the Delegation or an agency-specific determination, the Finance Minister’s written agreement must be sought (see Part 3.2.2 paragraph 30-32).

Before using the Delegation

2. Regulation 10 is an important statutory obligation. A Chief Executive, or his/her delegate, should exercise their judgement when deciding whether to provide Regulation 10 agreement, having regard to the following principles:

a) the Delegation should be exercised in a manner consistent with the broader obligation on Chief Executives to promote the efficient, effective, economical and ethical use of Commonwealth resources that is not inconsistent with the policies of the Commonwealth;

b) a commitment, especially a multi-year commitment such as a long-term lease, should be made only if necessary to achieve government objectives and only to the extent necessary to achieve these objectives;

c) the need to provide certainty to the other party to an arrangement should be determined on a case-by-case basis and must be balanced responsibly against the need to manage commitment levels in a way that retains the Government’s capacity to respond to new, emerging and unexpected demands;

d) agencies should manage commitment levels prudently and in a way that avoids placing the Government in a position where high priority and urgent claims can only be funded through budget supplementation;

e) no commitments may be made beyond the limits of any relevant policy approval; and

f) securing Regulation 10 agreement does not guarantee future funding. The agency will be required to meet the cost of the arrangement within current and future appropriations.





3. The Delegation can only be used to provide Regulation 10 agreement for an arrangement where the relevant appropriation item is an annual appropriation or a Special Account. The Delegation must not be used for an arrangement where the relevant appropriation is a special appropriation other than a Special Account. Agencies should seek advice from Finance if there is any doubt as to whether the Delegation may be used in relation to a particular arrangement or appropriation.

4. All directions set out in the Delegation must be followed by delegates when providing Regulation 10 agreement.

Using the Delegation

5. Both appropriations and validated forward estimates of expenditure, as recorded in the Central Budget Management System (CBMS), are relevant when determining whether Regulation 10 agreement can be provided under the Delegation. This is a different assessment to that used to determine whether Regulation 10 agreement is required, where only appropriations are considered.

6. If Regulation 10 agreement is required, the first step is to determine whether agreement by the Chief Executive, or delegate, would be consistent with the directions in the Delegation. A summary of the Delegation is at Part 3.2.4. The following information will be required:

a) all relevant available appropriations, noting there may be more than one relevant appropriation, especially for an agency-wide or a whole-of-government arrangement;

b) the amount of uncommitted appropriation/s and uncommitted forward estimates;c) the relevant appropriation item/s (administered, departmental or Special Account);d) all potential costs for each year of the proposed arrangement;e) the most probable overall cost of any contingent liabilities that are not removed by

Regulation 10A, should they crystallise; andf) the duration of the proposed arrangement, including the duration of any relevant

contingent liabilities (refer to paragraph 7 below).

7. Subdivisions 1.1 and 1.2 of the Delegation refer to the need to obtain written consent from the agency Minister to exercise the Delegation where the duration of the proposed arrangement extends beyond the period of the forward estimates (i.e. the third forward year). The function of providing ministerial consent cannot be delegated. However, the agency Minister may provide consent to use the Delegation for a group of arrangements. The terms of any such consent for a group of arrangements should be explicit and appropriately limited.

8. Subdivisions 1.1 and 1.2 of the Delegation refer to ‘the forward estimate recorded for the third forward year’ (FE3). FE3 may vary, depending on the time of year the arrangement is being considered. The period of the forward estimates covers the Next Budget Year (NB) and the three years after it. Before the Mid Year Economic and Fiscal Outlook (MYEFO), NB is the current financial year. After MYEFO, the following financial year becomes NB, with the three forward estimate years after it, including a new FE3. As illustrated below, if an arrangement is being considered before MYEFO 2010, FE3 is 2013-14, but if the arrangement is being considered after MYEFO 2010, FE3 is 2014-15.



Before MYEFO 2010Financial Year

2010-11 2011-12 2012-13 2013-14

Name Next Budget Year (NB)

Forward estimate 1

(FE1)

Forward estimate 2

(FE2)

Forward estimate 3

(FE3)

After MYEFO 2010Financial Year

2010-11 2011-12 2012-13 2013-14 2014-15

Name Revised Budget Year (RB)

Next Budget Year (NB)

Forward estimate 1

(FE1)

Forward estimate 2

(FE2)

Forward estimate 3

(FE3)

9. Where the Delegation refers to years ‘beyond the period of the forward estimates’, this means years beyond FE3.

10. Subdivisions 1.3, 1.5 and 1.6 of the Delegation refer to the most probable expenditure that would need to be made under a contingent liability. In determining the most probable expenditure for the purposes of the Delegation, the availability of insurance may not be taken into account3.

11. A delegate may exercise the delegation in respect of a contingent liability if he or she is satisfied that the contingent event is remote, that if the event did occur, the most probable expenditure it would involve would not be ‘significant’ and also if the contingent liability would not expressly meet the costs of civil or criminal penalties of the indemnifies party. The Delegation defines:

- remote as a probability of less than 5% that it will occur; and- significant as at least $20 million.

Note that subdivision 1.6(2) also allows the delegate to exercise the delegation in respect of a contingent liability contained in a spending proposal that is considered by Cabinet, the National Security Committee of Cabinet (NSC) or the Prime Minister where the contingent liability:

- has been assessed as remote and also that, if the event did occur, the most probable expenditure it would involve would not be significant; or

- has been explicitly included in the relevant decision of Cabinet, NSC or the Prime Minister; or

- is capped to an amount that does not cause the total potential cost of the arrangement to exceed the amount specified in the relevant decision of Cabinet, NSC or the Prime Minister.

3 Although the availability of insurance is not relevant to determining the most probable expenditure under a contingent liability, it is relevant to overall considerations by a Chief Executive (or delegate) of an agency when contemplating providing Regulation 10 agreement (see Part 3.2.2 paragraph 27).



12. For the purposes of the Delegation, the most probable expenditure is used to determine the significance of expenditure that might be payable under the contingent liability.

13. Subdivisions 1.3 and 1.5 of the Delegation refer to the duration of the arrangement. In relation to a contingent liability, the duration must include the period in which an event that causes a contingent liability to crystallise could occur. Depending on how the contingent liability is specified, such an event could occur following the expiry of the arrangement containing the contingent liability. For example, a one-year arrangement contains an explicit agreed term in relation to a specific contingent liability of a further two years after the arrangement has expired. Under the relevant Statute of Limitations a person is able to make a claim for six years after an incident occurs. For the purposes of subdivisions 1.3 and 1.5, the duration of the arrangement would include the length of the arrangement (1 year) and the period of time agreed in the arrangement that the contingent liability could crystallise (2 years), giving the arrangement a total duration of 3 years. The duration of the arrangement would not include the length of time during which a person can make a claim (6 years).

14. Subdivision 1.4 of the Delegation refers to arrangements relating to payments made under the Federal Financial Relations Act 2009 (FFR Act). This subdivision provides that a delegate may agree to an arrangement (for which money is not appropriated) if the arrangement relates to a payment to a State or Territory that is made for the purposes of the FFR Act, including:

a) General Revenue Assistance; b) Other General Revenue Assistance; c) National Specific Purpose Payments; andd) National Partnership Payments.

15. Subdivision 1.6 of the Delegation refers to arrangements that have been explicitly agreed in a decision of the Cabinet, NSC, or the Prime Minister. This paragraph of the Delegation is only available if the submission made to, or the decision taken by, Cabinet, NSC, or the Prime Minister explicitly provides details on the:

a) recipient of the money;b) amount of expenditure for each year of the arrangement; andc) item or activity (for example, product, service, grant or entitlement).For example, a Cabinet decision to ‘provide $1.5 million per year for three years to fund ten palliative care beds in Finmaville District Hospice’ would be considered sufficiently explicit for the purposes of subdivision 1.6. In contrast, a more general decision to ‘provide funding to health care providers to increase the availability of palliative care in Finmaville and the surrounding region’ would not fall within the scope of subdivision 1.6.

16. Schedule 2, Part 1 of the Delegation has been amended to explicitly provide for situations where expenditure under an arrangement will be supported by more than one departmental or administered item (but not by both administered and departmental items). This includes arrangements within an agency, and situations where Chief Executives of different agencies agree, preferably in writing, to jointly cover expenditure under an arrangement.

- Subdivision 1.1 provides that if an arrangement relates to more than one departmental item, the requirements of this subdivision must be met in relation to each item.



- Subdivision 1.2 provides that if an arrangement relates to more than one administered item, the requirements of this subdivision must be met in relation to each item.

- Subdivision 1.3 provides that if an arrangement consists of or includes contingent liabilities that relate to more than one departmental or administered item, the requirements of this subdivision must be met in relation to each item.

- Subdivision 1.6 provides that if an arrangement has been explicitly agreed in a decision of Cabinet, the NSC or the Prime Minister and relates to more than one departmental or administered item, the requirements of this subdivision must be met in relation to each item.

17. Agreement must be reached between the Chief Executives (or delegates) of the relevant agencies as to which agency’s Chief Executive, or delegate, will provide the Regulation 10 agreement and the circumstances under which they may give Regulation 10 agreement (e.g. for which appropriation/s and purpose/s). Generally, agreement would be given by the Chief Executive, or delegate, of the agency that will enter into the arrangement.

18. Before exercising the Delegation relating to inter-agency or cross-agency activities, the delegate and the relevant agencies should ensure compliance, in relation to each administered or departmental item, with the directions in the relevant subdivision.

19. For an arrangement with a duration beyond the forward estimates, these directions include the requirement for each responsible Minister to provide written consent to the exercise of the Delegation, unless the arrangement is in accordance with a decision of Cabinet, the NSC or the Prime Minister. Chief Executives of participating agencies should obtain their Minister’s consent prior to agreeing to the exercise of the delegation, including consent to the exercise of the delegation by a delegate in another agency.

20. Where an arrangement relating to inter-agency or cross-agency activities consists of or includes a contingent liability, the relevant agencies may wish to agree to the apportionment of risk under the contingent liability before entering into the arrangement.

21. The Delegation can be used when providing Regulation 10 agreement in relation to a group of proposed arrangements. In considering a group of arrangements, as with any arrangement, a delegate will need to comply with the directions in the Delegation, in particular subdivision 1.9. For a delegate to consider providing Regulation 10 agreement, the group of proposed arrangements would need to relate to a defined period of time, over which the conditions and risks of the individual arrangements are identical or very similar.

22. Agreement for a group of arrangements must be provided for the total cost and duration of all the arrangements in the group, as opposed to the cost of any one item payable under the arrangements, such as, only the indemnity, if it is an indemnity not captured by Regulation 10A, see Part 3.1.2.

23. The request for Regulation 10 agreement for a group of arrangements should address the following matters:

a) the total amount of public money that would be payable for the arrangements in the group, including the most probable expenditure that could arise under any contingent liabilities that are not removed by Regulation 10A;



b) the inclusion of the number of arrangements under the group;c) the total duration of all arrangements in the group; d) consideration of risks arising from all the arrangements;e) the appropriation item applicable to the arrangements; f) whether there is uncommitted appropriation and uncommitted forward estimates

sufficient to meet the proposed expenditure;g) the condition that each arrangement within the group is identical (e.g. due to a deed

of standing offer) or very similar (e.g. short-term car hire or commercial off-the-shelf software);

h) the condition that each arrangement involves standard terms and conditions, including those that may form contingent liabilities;

i) the condition that the amount payable under any one arrangement will not cause the agreed total amount to be exceeded cumulatively or in total. This will require monitoring by the relevant area.

24. Note that any contingent liability contained in a particular proposed arrangement covered by a Regulation 10 agreement given for a group of arrangements should still be assessed against Regulation 10A, as Regulation 10 agreement may not be required for that contingent liability.

25. Once Regulation 10 agreement for a group of proposed arrangements is obtained, it can be relied upon when entering into each individual arrangement as long as the total monetary limit and the time-frame specified in the original agreement are not exceeded, and provided each arrangement is consistent with the conditions in the original Regulation 10 agreement.

26. Any Regulation 10 agreement must cover the whole arrangement. It must include any portions that are covered by an available uncommitted appropriation and the portion that is not covered by an available uncommitted appropriation. For example, if the first year of a proposed multi-year arrangement involving an administered item has available uncommitted appropriation but future years do not, the Regulation 10 agreement still needs to include the first year. It must also include any contingent liabilities not removed by Regulation 10A.

- While the delegate, or Finance Minister, does not need to agree to the most probable expenditure that might become payable under a contingent liability that is removed by Regulation 10A, the Regulation 10 documentation should include information relating to these contingent liabilities. This gives the delegate (or Finance Minister) full knowledge of all risks associated with the arrangement when considering providing Regulation 10 agreement.

27. Any Regulation 10 agreement provided under the Delegation must be provided in writing by the Chief Executive, or their delegate. The Chief Executive, or their delegate must also ensure that the directions included in subdivisions 1.8 to 1.10 are complied with, particularly those in 1.9 referring to what should be identified in the proposed arrangement. Note that the availability of insurance will be relevant to the Chief Executive (or their delegate) when considering the risk-related matters under subdivision 1.9(d) of the directions (see Part 3.2.2 paragraph 10).



Agency-specific determinations

28. Agency-specific determinations, which alter the directions in the Delegation, may be established by the Finance Minister, where it is appropriate to address specific circumstances. All of the directions in the Delegation apply to any agreement provided under the authority of an agency-specific determination, except where altered by the determination.

29. An agency should contact Finance if it proposes to seek the establishment of an agency-specific determination. The agency Minister may also need to write to the Finance Minister to request the determination.

Written agreement from the Finance Minister

30. Written agreement to an arrangement under Regulation 10 must be sought from the Finance Minister where agreement by a delegate would not be consistent with the directions in the Delegation or an agency-specific determination.

31. An agency should contact Finance in advance if Regulation 10 agreement is needed from the Finance Minister. The agency Minister will need to write to the Finance Minister to formally request the agreement and attach a completed Regulation 10 request form (see Part 3.2.5 of this circular). The letter should explicitly identify why agreement cannot be considered by a Chief Executive under the Delegation.

32. The Finance Minister’s power is not limited in providing agreement under Regulation 10 in relation to any arrangement.


Part 3.2.3 – Worked examples

3.2.3 Worked examplesWorking out the uncommitted appropriation 4 for Regulation 10

This calculation is relevant to determining:

- whether the need for Regulation 10 agreement will be triggered by a proposed arrangement; and

- if so, in relation to the current year, whether Regulation 10 agreement may be provided by a Chief Executive (or delegate) under the Finance Minister’s Delegation.

Annual appropriations departmental and administered

Step 1: work out the amount of the appropriation.

The amount of the appropriation is the amount indicated in the relevant annual Appropriation Act (relevant appropriation) after taking account of any formal adjustments5, such as cash receipts that have been received and recorded under section 31.- For annual administered appropriations, the amount of the appropriation is the

administered item allocated to the relevant Outcome.

- Section 31 only applies to departmental appropriation items that may be credited with receipts in accordance with Regulation 15.

Step 2: work out the revenues that will increase the appropriation.

The only revenues that are to be counted are those that are:a) yet to be received and recorded in the relevant financial year; and

b) published in Portfolio Budget Statements, Portfolio Additional Estimates Statements or Portfolio Supplementary Additional Estimates Statements for the relevant financial year; and

c) a recognised receipt under section 31 of the FMA Act.

Step 3: work out the amount already allocated with respect to the appropriation.

The amount already allocated is the sum of amounts for the following items:a) liabilities, as defined in the applicable Australian Accounting Standards, that are to be

supported by the appropriation;

b) commitments, as defined in the Finance Minister’s Orders, that are to be supported by the appropriation;

c) actual cash expenditure supported by the appropriation and future anticipated expenditure, not included in (a) to (b) above (e.g. staff salaries) to be supported by the appropriation; and

d) in relation to departmental appropriations, amounts that have been set aside to support payment of future expenses under multi-year arrangements for which agreement was not sought under Regulation 10 (see Part 3.2.1, paragraph 9b of this circular for an explanation of this process).

4 Uncommitted appropriation is defined in the Financial Management and Accountability (Finance Minister to Chief Executives) Delegation, available at http://www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html.5 Formal ‘adjustments’ are the formal additions and reductions described in Division 101 of the Finance Minister’s Orders (FMOs), available at http://www.finance.gov.au/financial%2Dreporting%2Dand%2Daccounting%2Dpolicy/.



Step 4: work out the uncommitted appropriation.

The uncommitted appropriation is:

uncommitted appropriation = appropriation plus revenues minus amount already

allocated

Note: More than one appropriation may be relevant for a given proposed arrangement. If you are working out whether the need for Regulation 10 agreement will be triggered by a proposed arrangement, the calculations can be performed for each relevant available appropriation and the uncommitted appropriations can be added together to see if they are sufficient to cover the total cost of the arrangement.

Example 1:The relevant appropriation (departmental) indicated in the annual appropriation Act for an agency is $15 million and the agency has already recorded receipts of $2 million in cash under section 31 of the FMA Act. Another $4 million is expected to be received under section 31 of the FMA Act. The agency already has $7 million in liabilities, commitments, expenditure and anticipated expenses to be supported by the appropriation. What is the uncommitted appropriation?Step 1: Appropriation = $15 million plus $2 million = $17 millionStep 2: Revenues = $4 millionStep 3: Amount already allocated = $7 millionStep 4: Uncommitted appropriation = $17 million plus $4 million minus $7 million

= $14 million

Special Accounts

Step 1: work out the amount of the appropriation.

The amount of an appropriation for a Special Account is the balance standing to the credit of the Special Account at the current point in time.

Step 2: work out the anticipated receipts that will increase the appropriation in the current year.

The only anticipated receipts that are to be counted are those that are:a) yet to be credited in the current financial year; andb) published in Portfolio Budget Statements, Portfolio Additional Estimates Statements or

Portfolio Supplementary Additional Estimates Statements for the current financial year; and

c) a recognised credit for the Special Account.

Step 3: work out the amount already allocated with respect to the Special Account.


supported by the Special Account in the current financial year;b) commitments, as defined in the Finance Minister’s Orders, that are to be supported by

the Special Account in the current financial year;c) future anticipated expenditure not included in (a) to (b) above (for example, staff

salaries) for the Special Account in the current financial year; and



d) amounts that have been set aside in the current financial year to support payment of future expenses under multi-year arrangements for which agreement was not sought under Regulation 10 (see Part 3.2.1, paragraph 9b of this circular for an explanation of this process).

Step 4: work out the net amount already allocated.

For Special Accounts, anticipated receipts can only be counted to the extent that they offset the amount already allocated. Therefore, if the amount of anticipated receipts is greater than the amount already allocated, then the net amount already allocated is nil. This step applies a more conservative approach than used for annual appropriations, recognising that there is greater likelihood that amounts to be credited to Special Accounts are to come from outside Government.

net amount already allocated = amount already

allocated minus anticipated receipts

Step 5: work out the uncommitted appropriation.

The uncommitted appropriation is the amount of the appropriation minus the amounts already allocated.

uncommitted appropriation = appropriation minus net amount already

allocated

Example 2:The current balance of a Special Account is $15 million. Another $6 million is expected to be credited to the Special Account this financial year. The agency already has $5 million in liabilities and commitments to be supported by the Special Account this financial year. What is the uncommitted appropriation?Step 1: Appropriation = $15 millionStep 2: Revenues = $6 millionStep 3: Amount already allocated = $5 millionStep 4: Net amount already allocated = $5 million minus $6 million = $nilStep 5: Uncommitted appropriation = $15 million minus $nil = $15 million



Working out the uncommitted forward estimate 6 for Regulation 10

This calculation is relevant to determining whether Regulation 10 agreement can be provided by a Chief Executive (or delegate) under the Finance Minister’s Delegation.

Annual appropriations and Special Accounts7

The steps to calculate uncommitted forward estimates are similar to those for calculating uncommitted appropriation. The main difference is that anticipated receipts cannot be included. This is because the forward estimates are estimates of total expenses for a given year and therefore already take into account anticipated revenue which would increase an agency’s annual appropriation or Special Account balance.

Step 1: work out the amount of the forward estimate of expenses for each relevant year. The amount of the forward estimate is the validated estimate of expenses in the Central Budget Management System (CBMS) maintained by Finance.

Step 2: work out the amount already allocated with respect to the forward estimate for the relevant year.


supported by the forward estimate;b) commitments, as defined in the Finance Minister’s Orders, that are to be supported by

the forward estimate; andc) future anticipated expenditure, not included in (a) to (b) above (for example, staff

salaries) to be supported by the forward estimate.

Step 3: work out the uncommitted forward estimate.

The uncommitted forward estimate is:

uncommitted forward estimate

= forward estimate minus amount already

allocated

6 Uncommitted forward estimate is defined in the Financial Management and Accountability (Finance Minister to Chief Executives) Delegation, available at http://www.finance.gov.au/financial-framework/fma-legislation/fma-delegations.html.7 Note that with Special Accounts there is inherently more risk involved in considering future expenditure under an arrangement against a forward estimate if amounts to be credited are to come from outside Government



Example 3:The forward estimate of expenses (departmental annual) for the relevant year indicated in CBMS for an agency is $15 million and the agency anticipates receipts of $2 million in cash under section 31 of the FMA Act. The agency already has $7 million in liabilities, commitments, and anticipated expenses to be supported by the forward estimate. What is the uncommitted forward estimate?Step 1: Forward estimate = $15 million Step 2: Amount already allocated = $7 million Step 3: Uncommitted forward estimate = $15 million minus $7 million

= $8 million (The anticipated receipts cannot be included in the calculation as they would already have been included in the validated forward estimate of expenses as recorded in CBMS.)



Working out the uncommitted amount for years beyond the third forward year for Regulation 10

This calculation is relevant to determining whether Regulation 10 agreement can be provided by a Chief Executive (or delegate) under the Finance Minister’s Delegation.

Annual appropriations and Special Accounts8

Step 1: work out the amount of the forward estimate of expenses for the third forward year.

The amount of the forward estimate is the validated estimate of expenses in the Central Budget Management System (CBMS) maintained by Finance for the third forward year. As noted in Part 3.2.2 paragraph 8, the year may vary depending on whether the spending proposal is being considered before or after MYEFO.

Step 2: work out 20% of the amount determined in Step 1.

Step 3: work out the amount already allocated with respect to the relevant year beyond the third forward year.


supported by funding in the year beyond the third forward year; andb) commitments, as defined in the Finance Minister’s Orders, that are to be supported by

funding in the year beyond the third forward year.Step 4: work out the uncommitted amount for years beyond the third forward year.The uncommitted amount for years beyond the third forward year is:

Uncommitted amount for the years

beyond the third forward

year

=

Forward estimate of

expenses for the third

forward year

multiply by 20% then minus

amount already

allocated

8 Note that with Special Accounts there is inherently more risk involved in considering future expenditure under an arrangement against the calculated amount for years beyond the forward estimates if amounts to be credited are to come from outside government.



Example 4:The relevant forward estimate of expenses (departmental annual) indicated in CBMS for the third forward year for an agency is $15 million and the agency anticipates receipts of $2 million in cash under section 31 of the FMA Act. The agency already has $1 million in liabilities and commitments and $1 million in anticipated expenses to be supported by the year beyond the third forward year. What is the uncommitted amount for the year beyond the third forward year?

Step 1: Forward estimate for the third forward year = $15 million Step 2: Forward estimate for the third forward year x 20% = $3 millionStep 3: Amount already allocated = $1 million Step 4: Uncommitted amount for year beyond the third forward year = $3 million minus $1 million

= $2 million The anticipated receipts cannot be included in the calculation as they would already have been included in the validated forward estimate of expenses for the third forward year recorded in CBMS.

There is no requirement for anticipated expenses to be included in the calculation of the amount already allocated in this case.


Part 3.2.4 – Summary of the Delegation for Regulation 10

3.2.4 Summary of the Delegation for Regulation 10 The directions in the Delegation must be followed and records must be kept.

Subdivision Arrangement Summary of Delegation directions What next?

1.1 Departmental arrangement

- There is no loan guarantee and no other contingent liability that is not excluded by Regulation 10A.

- Costs are within the uncommitted appropriation and uncommitted forward estimates up to the third forward year (FE3).

- Annual costs beyond FE3 don’t cause commitments and liabilities to exceed 20% of the FE3 estimate.

- Duration does not exceed 22 years.

- Obtain agency Minister’s written consent if arrangement goes beyond FE3.-The arrangement must be consistent with subdivision 1.1 of the Delegation. - If so, the Chief Executive (or delegate) can provide Regulation 10 agreement. o Comply with subdivisions

1.8-1.10 of the Delegation.- If not, obtain written agreement from the Finance Minister.

1.2 Administered arrangement

- There is no loan guarantee and no other contingent liability that is not excluded by Regulation 10A.

- Costs are within the uncommitted appropriation and uncommitted forward estimates up to FE3.

- Annual costs beyond FE3 don’t cause commitments and liabilities to exceed 20% of the FE3 estimate.

- Duration does not exceed 10 years.

-Obtain agency Minister’s written consent if arrangement goes beyond FE3.- The arrangement must be

consistent with subdivision 1.2 of the Delegation.- If so, the Chief Executive (or

delegate) can provide Regulation 10 agreement.o Comply with subdivisions

1.8-1.10 of the Delegation.- If not, obtain written agreement

from the Finance Minister.

1.3 Arrangement is, or includes, a contingent liability

-Contingent liabilities (that are not excluded by Regulation 10A) have been assessed as remote and not significant, as defined in the Delegation.- The contingent liabilities would not

expressly meet the costs of civil or criminal penalties of the indemnified party.

Other than in relation to the contingent liability, the arrangement must be consistent with subdivision 1.1 or 1.2 of the Delegation.

-The arrangement must be consistent with subdivision 1.3 of the Delegation.- If so, the Chief Executive (or


1.8-1.10 of the Delegation. - If not, obtain written agreement



Part 3.2.4 – Summary of the Delegation for Regulation 10

1.4 Arrangement relating to payments made under the Federal Financial Relations Act 2009

- The arrangement relates to a payment to a State or Territory that is made for the purposes of the Federal Financial Relations Act 2009, i.e. :o General Revenue Assistance; o Other General Revenue

Assistance; o National Specific Purpose

Payments; ando National Partnership

Payments.





1.5 Arrangement relates to purchasing a vehicle under the Fleet Management Agreement9

- The arrangement is funded from a departmental item.- The duration does not exceed FE3.- The arrangement is consistent with

the Fleet Management Agreement.-Contingent liabilities (that are not

excluded by Regulation 10A) have been assessed as not significant.-Costs are within the uncommitted

appropriation and uncommitted forward estimates.





1.6 Arrangement was explicitly agreed by Cabinet, NSC or the Prime Minister

- The arrangement was explicitly agreed by Cabinet, NSC or the Prime Minister (see 3.2.2 paragraph 15 of this circular).-Contingent liabilities (that are not

excluded by Regulation 10A) have been assessed as remote and not significant; or were explicitly approved by Cabinet, NSC or the Prime Minister; or are capped.





9 Note that the Finance Minister has provided Regulation 10 agreement up to 31 January 2013 in relation to the leasing of vehicles under the Fleet Management Agreement, meaning that agencies do not have to obtain Regulation 10 agreement in relation to vehicle leases entered into under the Fleet Management Agreement. The Delegation only relates to purchases of vehicles under the Fleet Management Agreement.


Part 3.2.5 – Regulation 10 agreement request form

3.2.5 Regulation 10 agreement request formThis form should be completed and attached to Ministerial correspondence requesting that the Finance Minister provide agreement under Regulation 10. Agreement should be sought from the Finance Minister where the proposed arrangement is not within the scope of the Finance Minister’s delegation to Chief Executives or an agency-specific determination. Agencies should contact their Agency Advice Unit before finalising correspondence to the Finance Minister.

1. Brief description of the proposed arrangement.

2. Explanation of why the arrangement requires agreement from the Finance Minister.

3. Name of the relevant outcome and program.

4. Relevant appropriation item (for example, administered, departmental, relevant Special Account or relevant Bill or Act).

5. Date by which agreement is required and reason.

6. Length of agreement (including specific term of all contingent liabilities).

7. Total maximum cost of the proposed arrangement, excluding contingent liabilities:

$

8. Description of any variable costs (for example, travel costs).



Part 3.2.5 – Regulation 10 agreement request form

Description of any indexation arrangements (for example, rates and timing).

9. Description of all contingent liabilities (if any). Do not include contingent liabilities that are excluded from Regulation 10 requirements by the operation of Regulation 10A.

a) Has a risk assessment been done? (yes or no)

b) Has a risk management plan been established? (yes or no)

c) What is the maximum total cost of all contingent liabilities^? $

d) What is the most probable total cost of all contingent liabilities^? $

e) Is the most probable expenditure that might be payable under any contingent liability^ significant*?

(yes or no) Why?

f) Is the likelihood of the contingencies^ occurring remote#? (yes or no)

g) Is there an indemnity by the Commonwealth to meet the costs of civil or criminal penalties of the indemnified party? (yes or no)

h) Do all the contingent liabilities^ comply with the Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort? (yes or no)

^ Only those contingent liabilities that have not been excluded from the requirements of Regulation 10 by Regulation 10A.

*significant and #remote: as defined in the Finance Minister’s Delegation to Chief Executives.

10. Please attach a page summarising the risks under the arrangement, including any contingent liabilities excluded from the need for Regulation 10 agreement by Regulation 10A.

11. Please attach a table showing, for each year of the arrangement:

a) Amount of current appropriation and forward estimates (for annual administered appropriations this should be given at Outcome level);

b) Amount of existing commitments and liabilities;c) Amount of uncommitted appropriation and forward estimates;d) Maximum cost of the arrangement (excluding contingent liabilities, GST and indexation);e) GST amounts, if applicable;f) Estimated variable costs, if applicableg) Estimated indexation amounts, if applicable; andh) Maximum estimated cost of the arrangement (including GST and estimated variable costs

and indexation).


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