Senate

Revised Explanatory Memorandum

(Circulated with the authority of the Minister for Finance and Deregulation, Senator the Hon Penny Wong)

V. NOTES ON SCHEDULE 2 - Amending the Financial Management and Accountability Act 1997

29. This Schedule seeks to improve the readability of the Financial Management and Accountability Act 1997 (FMA Act) by clarifying its interaction with the Legislative Instruments Act 2003 (Legislative Instruments Act), and clarifying a reference to the 'external auditors' of FMA Act agencies.

30. An explanation of the amendments proposed in Schedule 2 is provided in sequential order.

Sunsetting and disallowance of Special Account determinations

31. Item 1 adds two additional subsections to section 20 of the FMA Act. This would move the rules on the sunsetting and disallowance of Special Account determinations into section 20 of the FMA Act. Currently, those rules appear in the Legislative Instruments Act. The amendments in Schedule 3 of the Financial Framework Legislation Amendment Bill (No. 1 ) 2011 (FFLA Bill 2011) will amend the Legislative Instruments Act. The amendments in Schedules 2 and 3 allow for sunsetting and disallowance of Special Account determinations to be addressed in one place (the FMA Act), rather than across 2 Acts. This amendment would not change the way in which Special Account determinations are currently treated, in particular their treatment as Legislative Instruments.

32. The new subsection 20(6) provides that a determination to establish, revoke or vary a Special Account under subsection 20(1) or (2) of the FMA Act is a legislative instrument. The sunsetting requirements in Part 6 of the Legislative Instruments Act do not apply to these determinations.

33. The note to new subsection 20(6) explains that a determination under subsection 20(1) or (2) is subject to the disallowance process under section 22 of the FMA Act rather than under Part 5 of the Legislative Instruments Act. Section 57 of the Legislative Instruments Act, together with regulation 10 and Schedule 4 of the Legislative Instruments Regulations 2004 , preserve the disallowance provisions in section 22 of the FMA Act.

34. Section 22 of the FMA Act provides that a determination made by the Finance Minister under subsection 20(1) or (2) of the FMA Act must be tabled in each House of the Parliament, and, following a motion upon notice, either House may pass a resolution disallowing that determination within 5 sitting days of tabling of the determination. If neither House passes such a resolution, the determination would take effect after those 5 sitting days have lapsed.

35. In relation to Special Account determinations under subsection 20(1) or (2) of the FMA Act, section 22 is more protective of the review rights of the Parliament than the regular disallowance provisions within the Legislative Instruments Act.

36. The new subsection 20(7) provides that a determination to abolish a Special Account under subsection 20(3) of the FMA Act is a legislative instrument, but is not subject to the disallowance and sunsetting provisions in the Legislative Instruments Act. Such an instrument is currently exempted from the disallowance and sunsetting provisions by table item 19 of subsection 44(2) and table item 17 of subsection 54(2) of the Legislative Instruments Act, respectively.

37. For further reference, Special Accounts are discussed further in the Joint Committee of Public Accounts and Audit Inquiry into the Draft Financial Framework Legislation Amendment Bill , which was tabled in the Parliament on 20 August 2003.

Auditor-General is the external auditor of an FMA Act agency

38. Item 2 amends section 46 of the FMA Act to provide that a Chief Executive of an FMA Act agency must establish and maintain an audit committee providing a forum for communication between the Chief Executive, the senior managers of the agency, the internal auditors of the agency and the Auditor-General. This amendment simply recognises that the 'external auditors' of all FMA Act agencies is the 'Auditor-General', which includes any persons authorised to represent the Auditor-General.

Chief Executive's instructions are not legislative instruments

39. Item 3 would add a new subsection to the end of section 52 of the FMA Act. New subsection 52(3) provides that a Chief Executive's instructions (CEIs), issued in accordance with the Financial Management and Accountability Regulations 1997 , are not legislative instruments. This amendment would not change the way in which CEIs are currently treated in practice.

40. No CEIs have been registered on the Federal Register of Legislative Instruments (FRLI), which was established under the Legislative Instruments Act 2003 (Legislative Instruments Act) that commenced on 1 January 2005. The Office of Legislative Drafting and Publishing (OLDP), which is responsible for FRLI, does not view CEIs as being legislative in character, nor, as a consequence, legislative instruments. Item 3 would ensure that the FMA Act explicitly describes CEI's as not being legislative instruments, which removes the need for legislative character test.

41. Under the current arrangements, FMA Act agencies are not required to register their CEIs on FRLI. Item 3 would ensure that this situation is retained, through a definitive statement that CEIs are not legislative instruments. In contrast, Special Account determinations and Guidelines, such as the Commonwealth Procurement Guidelines , are registered on FRLI: that will continue to be the case should the FFLA Bill 2011 be enacted.

42. CEIs are currently exempted from disallowance and sunsetting in the Legislative Instruments Act by table item 19 of subsection 44(2) and table item 17 of subsection 54(2) of that Act. Item 3 would render the inclusion of CEIs in these tables unnecessary, as the disallowance and sunsetting processes set out in the Legislative Instruments Act concern legislative instruments. Consequentially, items 1 and 2 of Schedule 3 would remove these exemptions from the Legislative Instruments Act.

Guidelines authorised by regulations are legislative instruments

43. Item 4 amends subsection 64(3) of the FMA Act to explicitly provides that a guideline issued by a Minister on matters within the Minister's responsibility (for example, the Commonwealth Procurement Guidelines issued by Finance Minister) is a legislative instrument that is not subject to the disallowance or sunsetting provisions in the Legislative Instruments Act.

44. A guideline issued under section 64 of the FMA Act is currently exempted from the disallowance and sunsetting provisions through table item 21 of subsection 44(2) and table item 19 of subsection 54(2) of the Legislative Instruments Act. This exemption applies because these guidelines are an internal management tool for Government (see the Explanatory Memorandum to the Legislative Instruments Bill 2003 ).

45. Guidelines issued under section 64 of the FMA Act are currently considered legislative instruments under the Legislative Instruments Act because OLDP, which is responsible for FRLI, consider that they are legislative in character. The amendment to subsection 64(3) of the FMA Act explicitly states that Guidelines are legislative instruments, thus removing the need for the legislative character test.

46. Item 4 inserts the relevant exemption from disallowance and sunsetting in the Legislative Instruments Act into section 64 of the FMA Act. Items 1 and 2 of Schedule 3 remove the exemptions from the Legislative Instruments Act. Such an amendment will aid the readability of the FMA Act.