RMG 400 - Commitment of relevant money

First published: June 2014
Last updated: March 2017

 

Audience

The following guide is relevant to officials of non-corporate Commonwealth entities (NCEs) and corporate Commonwealth entities (CCEs) who:

  • have been delegated the power or authorised by their accountable authority to approve commitments of relevant money or enter into, vary and administer arrangements on behalf of the Commonwealth or a Commonwealth entity, and
  • are responsible for providing advice on the use of these powers to other officials or ministers.

This guide replaces RMG 400: Approving commitments of relevant money (July 2014).

Non-corporate Commonwealth entities (NCEs)

A. Committing relevant money

  1. The Commonwealth commits and spends relevant money to achieve the purposes and objectives of the Australian Government.
  2. Relevant money is money standing to the credit of any bank account of the Commonwealth (or CCE), or money that is held by the Commonwealth (or CCE).
  3. A commitment of relevant money is an activity that creates an obligation to pay relevant money. A common way to commit relevant money is by entering into an arrangement. This includes an obligation that is contingent upon certain events occurring (for example, indemnities, guarantees and warranties).

Q. What is an arrangement? ▼

B. Legislative authority to enter into arrangements involving the commitment of relevant money

  1. The accountable authority of a NCE must generally have legislative authority to enter into arrangements involving the commitment of relevant money. For NCEs, this legislative authority can come from:
    • for arrangements relating to the ordinary activities of government, section 23 of the PGPA Act
    • for arrangements covered by another legislative scheme, that specific legislation
    • for arrangements not authorised by either of the above and made for the purposes of an arrangement, grant or program listed in the Financial Framework (Supplementary Powers) Regulations 1997, section 32B of the FF(SP) Act (e.g. this legislation supports the entry of arrangements for the purposes of many grants programs).
  2. For more on the different ways officials can commit relevant money, see RMG 411: Grants, procurements and other financial arrangements (July 2014).

Q. When to use section 23 of the PGPA Act?

Q. Is a separate approval to commit relevant money required before you can enter into an arrangement under section 23 of the PGPA Act?

Q. When is an overarching approval to commit relevant money appropriate?

Case study 1

The CFO of Small Entity wishes to provide an overarching approval for the commitment of relevant money for stationery for the financial year. Based on expenses for previous financial years, the CFO can reasonably estimate the annual expense for stationery ($100,000). Small Entity utilises a panel of stationery providers established by its portfolio department. The terms and conditions under the panel arrangement were separately approved (i.e. assessed as being a proper use of relevant money) when the panel was set up.

The CFO of Small Entity provides her approval for stationery purchases from the panel up to a total of $100,000 for the financial year and records this approval in writing. Once this limit has been reached for the year, a new approval is needed from the CFO. Controls are in place to monitor stationery expenses and instructions issued to entity officials on the process for ordering stationery and the type of stationery that can be purchased.

Case Study 2

The Business Unit Manager of a Large Entity wants to provide an overarching approval for the commitment of relevant money for all future travel within her unit for the financial year. The expenditure for previous financial years has varied considerably, and a reasonable estimate for travel within the unit cannot be accurately determined. There are a number of factors that influence the need and cost of each individual travel proposal. These include:

  • if the travel is needed in the particular situation or if alternatives can be used, i.e. video conferencing
  • if the type and class of travel is appropriate for the situation
  • if the additional costs associated with travel are appropriate, such as accommodation, meals and incidentals, or
  • if the timing of travel qualified for best fare of the day, or was in line with other government policies.

Based on the circumstances, the Business Unit Manager decides that travel would more appropriately be considered and approved by a delegate on a case-by-case basis.

Q. Can a minister approve proposed expenditure?

Q. What are reasonable inquiries?

Q. What should a record of the approval of a minister include?

Q. When to use the Financial Framework (Supplementary Powers) Act 1997?

Q. What other legislation authorises Commonwealth expenditure?

C. Delegating the power to enter into an arrangement

  1. An accountable authority can delegate the power in section 23 of the PGPA Act or section 32B of the FF(SP) Actto enter into an arrangement to:
    • officials in their entity or
    • officials of another NCE who will use or manage public resources that the accountable authority is responsible for.
  2. In delegating the power to enter into arrangements, an accountable authority must have regard to their duties in the PGPA Act, in particular:
    • their general duties in sections 25, 26, 27, 28 and 29
    • the duty to promote the proper use of the money, i.e. the efficient, effective, economical and ethical use of the money (sections 15, 16 and 18)
    • the duty to encourage cooperation to achieve common objectives, where practicable (section 17).
  3. An accountable authority can meet these duties by giving directions or instructions to officials about the commitment of relevant money, as part of the entity's systems of risk management and internal control. For example, an accountable authority could give officials:
    • directions about the exercise of the delegated power
    • instructions about what is expected from officials to demonstrate the proper use of relevant money, such as when officials are required to obtain a separate approval to commit relevant money before entering an arrangement
    • instructions to encourage officials to consider, where practicable:
      • entering into a contract where the services can be accessed by other entities (such as the Department of Finance currently does in relation to the leasing of vehicles)
      • cooperatively sharing an arrangement that allows the inclusion of other entities
      • dealing with contracts and payments on behalf of other entities (in these cases, arrangements might also be established to reimburse the entity bearing the initial costs of such contracts).

Q. Who should an accountable authority delegate power to?

D. Exercising the power to enter into arrangements

  1. Accountable authorities and delegates exercising the power to commit relevant money by entering into an arrangement must meet their general duties under sections 25 to 29 of the PGPA Act. In particular, these officials must exercise the power to commit relevant money with the degree of care and diligence that a reasonable person would exercise in the same position (section 25 of the PGPA Act) and act honestly, in good faith and for a proper purpose (section 26 of the PGPA Act). This will include being suitably informed of and, where necessary, complying with:
    • their entity's purposes and program objectives, and how the intended commitment of relevant money will support those purposes and objectives
    • the environment their entity operates in and the risk appetite of their entity
    • any relevant limitations, directions and instructions in their accountable authority's delegation of the power or in accountable authority instructions
    • any other relevant statutory obligations (e.g. the requirement to keep a written record of any approval to commit relevant money in section 18 of the PGPA Rule, or requirements in the Commonwealth Procurement Rules or Commonwealth Grants Rules and Guidelines).
  2. Because NCEs are part of the Commonwealth, a delegate who enters into an arrangement for an NCE does so on behalf of the Commonwealth.

Q. What about an arrangement that involves an indemnity, guarantee or warranty?

Q. Who needs to be delegated power to administer an arrangement?

E. Recording an approval to commit relevant money

  1. An official can provide verbal approval for a commitment of relevant money. However, an official must (either when entering into an arrangement or, if required, as a separate step) make a written record of the approval as soon as practicable after giving it (section 18 of the PGPA Rule).
  2. If applicable, officials will also need to have regard to requirements for documenting approvals under the:
  3. The accountable authority's instructions may set out what type of record of an approval to commit relevant money is appropriate in the circumstances. In considering what form of record will be sufficient, consider:
    • whether the record is proportionate to the significance, value, level of risk and sensitivities associated with the commitment, e.g. when hiring a taxi to attend a meeting, the cab charge voucher and a receipt from the taxi driver could themselves be sufficient to record the approval and
    • who will rely on the record.

Q. What is an appropriate record of an approval to commit relevant money?

Corporate Commonwealth entities (CCEs)

A. Committing of relevant money

  1. Commonwealth entities commit and spend relevant money to achieve the purposes and objectives of their entity and the Australian Government.
  2. Relevant money is money standing to the credit of any bank account of a CCE (or the Commonwealth), or money that is held by a CCE (or the Commonwealth).
  3. A commitment of relevant money is an activity that creates an obligation to pay relevant money. A common way to commit relevant money is by entering into an arrangement. This includes an obligation that is contingent upon certain events occurring (for example, indemnities, guarantees and warranties.

Q. What is an arrangement?

B. Legislative authority to enter into arrangements involving the commitment of relevant money

  1. CCEs are legally separate from the Commonwealth and generally derive power to enter into arrangements involving the commitment of relevant money from their enabling legislation and from their body corporate nature.
  2. An accountable authority of a CCE may be able to delegate, or authorise officials to exercise, the power to enter into arrangements under the CCE's enabling legislation. In deciding whether to devolve relevant powers, an accountable authority must have regard to their duties in the PGPA Act, in particular:
    • the general duties in sections 25, 26, 27, 28 and 29
    • the duty to promote the proper use of the money, i.e. the efficient, effective, economical and ethical use of the money (sections 15, 16 and 18)
    • the duty to encourage cooperation to achieve common objectives, where practicable (section 17).
  3. An accountable authority can meet these duties by giving directions or instructions to officials about the commitment of relevant money, as part of their entity's systems of risk management and internal control. For example, an accountable authority could give officials:
    • instructions on what is expected from officials to demonstrate the proper use of relevant money
    • instructions to encourage officials to consider, where practicable:
      • entering into a contract where the services can be accessed by other entities
      • cooperatively sharing an arrangement that allows the inclusion of other entities
      • dealing with contracts and payments on behalf of other entities (in these cases, arrangements might also be established to reimburse the entity bearing the initial costs of such contracts).

C. Exercising the power to enter into arrangements

  1. Officials who are able to enter into arrangements on behalf of a CCE must exercise the power in accordance with their general duties under sections 25 to 29 of the PGPA Act. In particular, they must exercise the power with the degree of care and diligence that a reasonable person would exercise in the same position (section 25 of the PGPA Act) and act honestly, in good faith and for a proper purpose (section 26 of the PGPA Act). This will include being suitably informed of and, where necessary, complying with:
    • their entity's purposes and program objectives
    • the environment their entity operates in and the risk appetite of their entity
    • any relevant instructions from their accountable authority
    • any other relevant legislative requirements (e.g. the requirement to keep a written record of an approval to commit relevant money in accordance with section 18 of the PGPA Rule or, where required, the Commonwealth Procurement Rules).

D. Recording an approval to commit relevant money

  1. An official can provide verbal approval for a commitment of relevant money. However, an official must make a written record of the approval as soon as practicable after giving it (section 18 of the PGPA Rule).
  2. If applicable, officials will also need to have regard to requirements for documenting approvals under Commonwealth Procurement Rules (CPRs), e.g. recording the procurement requirements and process, how value for money was considered and achieved and approvals and decisions made. The CPRs apply to CCEs listed in section 30 of the PGPA Rule.
  3. The accountable authority's instructions may set out what type of record of an approval to commit relevant money is appropriate in the circumstances. In considering what form of record will be sufficient, consider:
    • whether the record is proportionate to the significance, value, level of risk and sensitivities associated with the commitment, e.g. when hiring a taxi to attend a meeting, the cab charge voucher and a receipt from the taxi driver could themselves be sufficient to record the approval and
    • who will rely on the record.

Q. What is an appropriate record of an approval to commit relevant money?

Contact information: The contact for this topic is pmra@finance.gov.au

Last updated: 08 June 2017