The PGPA Act
The PGPA Act sets out the key requirements for the governance, reporting and accountability of Corporate Commonwealth Entities and the 'proper' use and management of public resources where 'public' resources means relevant money, relevant property, or appropriations.
'Proper' is defined in Section 8 of the PGPA Act to mean 'efficient, effective, economical and ethical'.
The PGPA Act requires all GBEs, whether a Commonwealth Company or a Commonwealth Corporate Entity, to meet high standards of governance, performance and accountability.
The PGPA Act includes provisions addressing the following broad categories:
- structure of Commonwealth bodies – including type of bodies and organisational hierarchy
- powers and duties of the Board of Directors (when functioning as the 'Accountable Authority')
- powers and duties of Officials
- planning and budgeting requirements for entities
- reporting requirements for entities
- regulation on financial arrangements (including borrowing) for entities and
- establishment of new entities (including subsidiaries of Commonwealth Companies) and interaction between PGPA Act and Corporations Act for Commonwealth Companies.
The PGPA Rule
The PGPA Rule is a subsidiary instrument which adds detail to a number of the provisions in the PGPA Act.
In particular, it establishes the accountability and control mechanisms that support the transactions of Commonwealth entities and Commonwealth Companies.
For GBEs, it adds specific requirements relating to the following broad categories:
- disclosure of interests by Directors and Officials
- corporate planning and reporting and
- financial management, particularly in respect of banking, borrowing and investment.
Resource Management Guides and other governance mechanisms
The Department of Finance has issued a number of Resource Management Guides (RMG) that provide practical guidance as to the way Corporate Commonwealth Entities and Commonwealth Companies should interpret and apply the Commonwealth Resource Management Framework.
RMG-126 Commonwealth GBE Governance and Oversight Guidelines is a key guidance document on GBE board and corporate governance, planning and reporting, financial governance and other governance matters and is relevant for Directors of Corporate Commonwealth Entities and Commonwealth Companies.
Further guidance on planning, reporting and internal controls for Corporate Commonwealth Entities is at:
RMG-200 General duties of Accountable Authorities and RMG-206 Accountable Authority Instructions.
A GBE may also be subject to general statements of Australian Government Policy that may be notified to one or more GBEs by the Minister for Finance.
Shareholder Ministers may also work with a GBE to put in place a Commercial Freedoms Framework (CFF), which provides qualitative and quantitative boundaries for the Board of Directors.
The CFF approach resembles the shareholder approval that can be required by listed companies seeking to make significant changes to nature or scale of its operations under ASX Listing Rule 11.
A GBE must notify its Shareholder Ministers of any 'significant' event, issue, decision or initiative. When determining what is a significant event or decision, Directors should be mindful of the key sensitivities and considerations from a Government perspective.
The definition of 'significant' will vary between GBEs. Quantitative and qualitative thresholds of what is 'significant' for a particular GBE will be notified by the Shareholder Ministers, often as part of a CFF.
Importantly, a GBE is obliged to notify the Shareholder Ministers before entering into any identified business opportunities, including new business ventures, major contracts or capital raising – regardless of whether it is considered 'significant'.
(PGPA Acts19 and RMG-126 paragraph 3.26a)
The Board of a GBE must have an audit committee and must determine the functions of the audit committee by written charter, including the review of the appropriateness of the Board's financial reporting, performance reporting, systems of risk oversight and management and system of internal control.
(PGPA Act s45 and s92 and PGPA Rule s17 and s28)
The Board of a GBE is also expected to establish and maintain a code of conduct for Directors in undertaking their business, to avoid activities that could give rise to questions about their political impartiality.
(RMG-126 paragraph 2.5)
In the event of a Federal election, GBEs should observe the 'caretaker' conventions and practices unless doing so would conflict with their legal obligations or compelling organisational requirements. Caretaker conventions recognise the fact that once the House of Representatives is dissolved the Executive cannot be held accountable for its decisions in the normal manner.
(Guidance on Caretaker Conventions 2016: Department of the Prime Minister and Cabinet)
