3.1 Ministers, Chief Executives and agency staff operate within an environment of legislation and government policy. Within this broad context, the financial management framework consists of the legislation, policy and guidance governing the management of Commonwealth resources. The grants policy framework is an important part of the financial management framework that provides for agencies to work together with the non-government sector to develop and deliver government policy outcomes.
3.2 The financial management framework contains an overarching requirement that Chief Executives must manage agency affairs in a way that promotes proper use of Commonwealth resources (i.e. efficient, effective, economical and ethical use that is not inconsistent with Commonwealth policies[24]). In managing the affairs of the agency, Chief Executives must comply with the Constitution, the FMA Act and FMA Regulations and any other law.[25]
3.3 Ministers must also comply with these legislative requirements and the CGGs.[26] Agency staff are responsible for advising Ministers on these requirements.
Key financial management legislative requirements
3.4 The FMA Act and FMA Regulations provide the overarching accountability framework for grants administration under which agency staff work together with the non-government sector. Chief Executives and agency staff need to consider their obligations under the FMA Act and FMA Regulations when undertaking grants administration. Chief Executive’s Instructions (CEIs), operational guidance and grant guidelines must be consistent with these requirements, while including any additional agency specific processes.[27]
3.5 Section 44 of the FMA Act provides that an agency 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. In doing so, the Chief Executive must comply with the FMA Act, the FMA regulations, Finance Minister’s Orders, Special Instructions and any other law. Proper use means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth.
a. Section 44 is an overarching requirement applying to all aspects of an agency’s resource management, including grants administration.[28]
b. Chief Executives mainly discharge their responsibility under section 44 by ensuring that their agency has appropriate policies, procedures, guidelines and internal controls in place, such as CEIs and operational guidelines. Agencies determine their specific practices and procedures for grants administration, provided they are consistent with the financial management framework and CGGs.
c. Chief Executives or agency staff need to determine whether there is a legal basis for the grant provided under section 44. If not, then refer to paragraph 3.6 below.
d. While Chief Executives are responsible for the management of their agencies, they are required to manage within the context of the Commonwealth’s policy framework. The CGGs are the core policy of the Commonwealth relating to grants administration. Other policies which may be relevant for grants administration are discussed later in the CGGs.
3.6 Before entering into an arrangement[29] that may commit public money:
a. there must be authority to enter into the arrangement;
b. agency staff must have acted in accordance with the Commonwealth Procurement Rules or Commonwealth Grant Guidelines, where relevant; and
c. the spending proposal must be approved under FMA Regulation 9 and, if required, agreement obtained under FMA Regulation 10.
3.7 The authority to make commitments to spend public money generally comes from legislation. The authority to enter into, vary or administer an arrangement can come from section 44 of the FMA Act, section 32B of the FMA Act or other specific legislation. This authority may be delegated to agency staff to enable them to enter into, vary or administer an arrangement.
3.8 Where a commitment to spend public money relates to the ordinary services and functions of government[30], or an arrangement covered by specific legislation, the authority to enter into, vary or administer an arrangement comes from either section 44 of the FMA Act or the specific legislation.
3.9 Where the authority to enter into an arrangement is not contained in specific legislation and the arrangement does not relate to the ordinary services and functions of government, the authority to enter into the arrangement will need to come from section 32B of the FMA Act or through new or amended specific legislation. Section 32B provides the Commonwealth with the power to enter into, vary or administer an arrangement or a grant of financial assistance only if it is specified in Schedule 1AA to the FMA Regulations. Schedule 1AA may list a specific arrangement or grant of financial assistance, a class of arrangements or grants, or a program under which an arrangement or grant is made.
3.10 FMA Regulation 7A(2) provides that a staff member performing duties in relation to the administration of grants must act in accordance with the CGGs.
3.11 FMA Regulation 8 provides that a person – who can be a Minister, Chief Executive, delegate or other person – must not enter into an arrangement under which public money is, or may become, payable unless a spending proposal has been approved under FMA Regulation 9 and, if required, written agreement has been given under FMA Regulation 10.
a. FMA Regulation 8 establishes requirements that must be met before a person enters into an arrangement.
b. FMA Regulation 8 applies to any contract, agreement or arrangement under which public money is, or may become, payable.[31]
3.12 FMA Regulation 9 establishes a single test, comprising a number of elements, which must be applied by an approver. In applying the test, an approver is required to balance the various elements, in order to determine whether giving effect to the spending proposal would be an efficient, effective, economical and ethical use of Commonwealth resources that is not inconsistent with the policies of the Commonwealth.[32] FMA Regulation 9 is consistent with, and reinforces the requirement, in section 44 of the FMA Act, to promote proper use of Commonwealth resources in the context of government policy.
3.13 FMA Regulation 9 provides that an approver must not approve a spending proposal unless the approver is satisfied, after reasonable inquiries, that giving effect to the spending proposal would be a “proper use” of Commonwealth resources.
a. FMA Regulation 3 defines an “approver” as a Minister, a Chief Executive or authorised person.
b. FMA Regulation 3 defines a “spending proposal” as a proposal that could lead to entering into a contract, agreement or arrangement under which public money is payable or may become payable.
c. “Proper use” means efficient, effective, economical and ethical use that is not inconsistent with the policies of the Commonwealth: subsection 44(3) of the FMA Act.
d. An approval for a spending proposal under FMA Regulation 9 can be provided verbally, however, FMA Regulation 12 requires the terms of the approval must be recorded in writing as soon as practicable after the approval is given. FMA Regulation 12 also sets out further recording requirements in relation to grants.
3.14 The grant agreement must be consistent with the terms of the approval given under FMA Regulation 9, including any conditions on the approval.
3.15 FMA Regulation 10 provides that if a person proposes to enter into an arrangement, and the relevant Agency has insufficient appropriation of money, under the provisions of an existing or 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.[33]
a. FMA Regulation 10 has particular relevance for multi-year grants or those grants that involve contingent liabilities, as there may be insufficient uncommitted appropriation to cover possible expenditure.
b. The Finance Minister has delegated powers relating to FMA Regulation 10, with certain directions that have the effect of limiting this authority, to agency Chief Executives.[34]
c. If required, FMA Regulation 10 agreement must be obtained from the Finance Minister or an authorised delegate before entering into an arrangement.
3.16 FMA Regulation 10A sets out circumstances where a contingent liability will not require FMA Regulation 10 approval. These include where:
a. the agency staff member entering into an arrangement is satisfied that the likelihood of the event occurring is remote (i.e. there is a less than five percent probability that the event will occur); and
b. if the event occurred, the most probable expenditure would not be material (i.e. $5 million or more).
3.17 FMA Regulation 12 provides that if approval of a spending proposal has not been given in writing, the approver must record the terms of the approval in writing as soon as practicable after giving the approval.
a. The recording requirements for grants differ from those relating to other spending proposals. FMA Regulation 12 contains the additional requirement to record the basis of an approval, in addition to the terms of the approval. In recording the basis of an approval, an approver must record the underlying rationale for the approval, in addition to the factual terms of the approval.
b. FMA Regulation 3A defines a grant for the purposes of FMA Regulation 12.
3.18 Agency staff [35]must note the implications of both section 5 and section 12 of the FMA Act when considering the involvement of third parties in grants administration.
a. Section 5 defines public money as 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.
b. Section 12 requires specific legislative authority or the Finance Minister’s written authorisation before entering into an arrangement involving the receipt, custody or payment of public money by an “outsider”.[36]
3.19 More generally, agency staff involved in grants administration must ensure that they:
a. behave in accordance with the law, government policy, agency rules (for example CEIs) and with applicable grant agreements;
b. keep commercially sensitive information secure and never use it for personal gain or to prejudice grants administration processes;
c. disclose information that the Government requires to be notified; and
d. disclose to their agency any form of current or prospective personal interest that might create a conflict of interest in grants administration.
3.20 The CGGs are an important part of the financial management framework. Breaches of the financial management framework may attract a range of criminal, civil or administrative remedies (including under the FMA Act, the Public Service Act 1999 and the Crimes Act 1914). Agency Chief Executives must report instances of non-compliance with the mandatory requirements of the CGGs in their annual Certificate of Compliance.
Other policy and legislative requirements
3.21 An overarching principle is that Chief Executives and agency staff should work together across government and with the non-government sector when undertaking grants administration.
3.22 Chief Executives and agency staff involved in grants administration must comply with government policies and legislation relevant to grants administration.
3.23 The policy requirements relating to grants administration include:
a. the CGGs, which are the core requirements of the Commonwealth relating to grants administration;
b. the guidelines applying to specific granting activities (including grant programs), such as the relevant program guidelines; and
c. applicable policies and legislation, such as those concerning privacy, government advertising, anti-discrimination, social inclusion, freedom of information, Australian industry participation and sector specific policies, such as the National Compact: working together relating to the not-for-profit sector.[37]
Suppression clauses
3.24 Agency staff must not use criteria in grant application and selection processes or clauses in grant agreements that seek to limit, prevent or ban not-for-profit organisations from advocating on policy issues.
Grant-connected policies
3.25 Grant-connected policies are whole-of-government policies of the Commonwealth for which grants have been identified as a means of assisting delivery. These policies have been explicitly approved by the Prime Minister, the Cabinet or a committee of the Cabinet as applying to all Commonwealth grants. Agencies should consult the Finance website for information on the processes to seek approval for a grant-connected policy.
3.26 Many of these grant-connected policies are the responsibility of agencies other than Finance. The policy agency is responsible for actively managing the policy, including advising on the application of the policy.