|You are currently viewing: Contents > Corp Management & Accountability > Management of financial resources|
Corporate management and accountability
Management of financial resources
The department continued to strengthen its financial management and further develop systems to ensure better corporate governance. The structures and processes for decision-making, accountability and control in the department have improved as a result of initiatives in the financial management information system, successful implementation of taxation reforms, more accurate forecasting of future asset needs, and the efficient and ethical management of tendering, contracting and consultancy services.
Reflecting the department’s application of good practice, as part of an audit of agency banking, the Australian National Audit Office (ANAO) concluded we had satisfactory controls to ensure the proper management and authorisation of cash management activities and demonstrated a proactive approach to staff training and communications. We also achieved a highly favourable outcome from an ANAO review in major Commonwealth entities of the control structures that underpin the preparation of the 2000–01 financial statements. Among the 25 agencies reviewed, we were ranked equal fifth best, with no significant business or financial risk noted.
The department operated within expected financial parameters during 2000–01. While the financial statements show an operating surplus of $9.902 million, the payment of a Capital Usage Charge resulted in a small operating loss of $2.1 million, or less than 0.4 per cent of our total budget (see ‘Equity Table’ at Note 12 to the financial statements). This loss was solely a consequence of a decline in the department’s balance sheet position caused by depreciation of the Australian dollar, chiefly against the US currency. We are not funded for such balance sheet fluctuations.
A review of outputs contributing to outcome 1 (protection and advancement of the national interest) and outcome 3 (public diplomacy) found that the department’s outputs were of an appropriate price, quantity and quality. In addition, the review noted that we would not return any savings to the Budget in 2001–02 or 2002–03 and that any savings beyond that time would be modest. This result reflects the fact that over the past five years we have absorbed substantial costs and significantly reduced staffing levels while also increasing the quantity and quality of our outputs.
The review noted the department had responded strongly to the Government’s public sector and financial reforms. It also made a number of recommendations for further improving our financial management, governance and evaluation structures. In particular, the review suggested that the increased use of accrual information for management purposes would increase our ability to forecast future liabilities accurately. We are moving to implement this recommendation.
The review of these outputs was the last part of an Output Pricing Review which followed a Government decision that the Minister for Foreign Affairs and the Minister for Finance and Administration should jointly review the price of the department’s outputs. The first part of the review, focusing on outcome 2 (services to Australian travellers), was completed in the 1999–2000 financial year and reported in the 1999–2000 annual report.
Financial Management Information System
The department began reaping the rewards of a unified financial management information system (FMIS). Efficiencies gained and the provision of accurate ‘live’ data, have led to more informed decision-making about departmental resources. The links between core polices and financial planning by work units, and their accountability, have been further enhanced.
During the year, supplementary training was provided to build on users’ existing knowledge and to explore further efficiencies available in the FMIS. One area identified for further development has been electronic banking. Through 2000–01, six overseas posts converted their payments systems to electronic banking to take advantage of efficiencies associated with this capability.
Work is under way to implement e-commerce functionality within the FMIS so that the Government requirement for procurement of 90 per cent of simple purchases through electronic means is met by the end of December 2001.
A Steering Committee was formed in November 2000 to oversee the department’s market-testing of corporate services. The Committee has identified a range of services to be market-tested, and has begun work with accounts and payroll processing.
The department’s implementation of (A) New Tax System (ANTS) was achieved with mostly internal resources, except in specific areas in which the department lacked technical expertise, such as Business Activity Statement (BAS) procedures and IT. Financial risk management is an essential element of sound corporate governance and management practice. In its risk management strategy for the department’s ongoing management of GST and FBT, PriceWaterhouseCoopers wrote, ‘it is evident from our taxation risk assessment that DFAT has come through the tax reform implementation period in an effective manner, and benchmarks favourably against other comparable public sector organisations’. The ANAO audit of the department’s financial statements for 2000–01, which include GST matters, did not find issues of concern.
Since the implementation of ANTS, the majority of issues relating to interpretation of GST legislation have been resolved internally. There have, however, been several occasions where the issues raised required a depth of taxation expertise not available within the department, for example, about exports to overseas posts and the requirement for Tax File Notice declarations for Office holders. This advice has been obtained from private tax experts and, in one case, from an Australian Taxation Office private ruling.
The department devolves funds for commercially leased properties to overseas posts, along with an amount for repairs and maintenance, furniture and fittings. Posts are responsible for managing the devolved amounts prudently in accordance with post priorities and guidelines for residential accommodation. We centrally manage funds for new chancery fit-outs and Head of Mission residence refurbishment.
The department provided budgetary and administrative support for a range of property projects. We managed new commercially leased chancery openings or relocations in Ramallah, Shanghai, Lisbon, Copenhagen and Zagreb, and began the process of relocating chanceries in Santiago, Tehran, Moscow and Amman. We have begun a property search for new office and residential accommodation in Chicago.
We managed projects for a new Head of Mission residence and staff residential compound in Dili and co-location of the Australian Embassy in Caracas with the Canadian Embassy. We provided support to the new Commonwealth-owned property construction projects in Brasilia and Dhaka, and in the preliminary planning stage of the new Berlin chancery. To meet the increased threat level facing the post in Honiara, we upgraded physical security measures at the Chancery and staff residences.
The department continued to liaise closely with the Department of Finance and Administration (Finance) and posts to implement the Government’s policies on outsourcing, including the outsourcing of property management services for the owned estate. The principal alliance partners in the property management outsourcing contract, PricewaterhouseCoopers, took over on 1 March 2001 the role of facilities management for the owned estate. We continued our cooperation begun last year with Finance and PricewaterhouseCoopers in ensuring a smooth transition to the new arrangements.
As foreshadowed in last year’s annual report, from 1 July 2000 the department absorbed two property functions that Finance had previously carried out. These were the head lease management function for multi-tenanted leased chanceries, and management of furniture and whitegoods in owned residential complexes for all overseas operating agencies. The head lease function gives the department direct responsibility for lease negotiations and office fitouts in all new leased chancery premises.
Domestically, the department provides office accommodation for staff in Canberra, State capital cities, Newcastle and Thursday Island. Four leases were subject to rent reviews in 2000–01. Three leases, sold under the Commonwealth Property Divestment Program, are the subject of dispute requiring appointment of an independent valuer to determine the current market rental value to ensure the Commonwealth’s interests are fully protected. Several minor leasehold improvements and office fit-outs were undertaken in the RG Casey building, which houses the department’s central headquarters.
An ANAO performance audit presented to Parliament on 27 June 2001, Commonwealth Management of Leased Property, had criticisms of the department’s strategic planning for property needs and management and monitoring of the department’s outsourced management service contract. We have engaged a consultant to undertake a comprehensive review of our property management arrangements. The department is complying with the ANAO’s two recommendations in full and expects to satisfy all requirements by 30 September 2001.
Asset management plans
During the year, more accurate forecasting of future asset needs by managers has led to more effective and efficient management of resources in accordance with the Financial Management and Accountability Act 1997. Asset control, including the timely recording of acquisitions and disposals and the inclusion of registered assets in the financial management information system, is an important element of the department’s governance and control structure. Since 1999–2000, the department has required all work units to develop five-year Asset Management Plans. These are reviewed twice a year before being consolidated in a departmental plan. The departmental plan facilitates strategic planning of capital purchases across the organisation. It is reviewed annually by a Capital Expenditure Coordination Group and the Senior Executive as part of the department’s internal budgetary review process.
Ecologically sustainable development and environmental performance
Reporting on the department’s activities in relation to foreign and trade policy aspects of ecologically sustainable development and environmental performance is principally under sub-outputs 1.1.7 and 1.2.7. In the context of property management, the department’s procurement practices include consideration of ecological sustainability and environmental practice. Planning processes continue to be improved to include consideration of environmental principles in the construction and operations of the government’s overseas missions and facilities. During 2000–01, the department reviewed the implementation of its recycling measures to improve their efficiency and coverage.
As part of its strategy to address environmental responsibilities through property operations in Australia, the department commissioned an external review of domestic property management arrangements, the report of which was presented in June 2001. The strategy also includes development of an Environmental Management System (EMS) in 2002 for the department’s operations in Australia. The EMS is a framework for reducing the impact of government operations on the environment and improving operating efficiencies. The department’s EMS operations in the R G Casey Building will be certified to the standards of ISO 14001.
Activities in 2000–01 under the Working Energy Program to improve energy use in the R G Casey Building included sealing thermostat controls throughout the building, eliminating excess energy usage through resetting building management controls for light pulsing and air conditioning, and installing insulation to exposed underside floor slabs. The department joined with the Australian Greenhouse Office to review current energy management practices, and was part of the Australian Greenhouse Office’s negotiations with ActewAGL for a benchmark whole-of-government electricity supply contract for the ACT that incorporates energy generated from alternative sources (Greenpower).
The department continued to work towards ensuring that our procurement policy provides the means for the efficient, effective and ethical delivery of the Government’s programs. So that all contractual arrangements we entered were conducted within the Commonwealth’s procurement framework and industry development policies, we prepared a number of documents to help staff in the procurement and contracting function. They were:
- a step-by-step guide to contracting, detailing the key steps in the tender process; and
- standard departmental contracts—two templates for contracts to form the basis of all future contracts entered into by the department.
The department also conducted an in-house contract management training course at six-weekly intervals for all staff involved in these activities.
Major new contracts negotiated by the department during the year concerned the provision of IT services, in particular in regard to the mainframe IT system and tempest-protected computer terminals. One contract exceeded the $100,000 reporting threshold: a five-year contract with CITEC for the provision of the department’s mainframe services was signed on 9 May 2001 at a cost of $9,920,000 over the period of the contract. This outsourcing is consistent with the recommendations of the Humphry Review as adopted by the Government.
To further improve the collection of data associated with contracts, we established a central database to capture all contracts entered into by the department and to help identify potential suppliers.
The department engaged specialists and recognised experts on an ad hoc basis for the provision of policy and strategic management advice where it lacked specialist expertise, or where independent assessments or input were considered desirable.
The process of selecting consultants, both in Australia and at overseas posts, followed the department’s broader procurement policies, which are consistent with Commonwealth Procurement Guidelines.
Some of the areas in which the department sought consultancy services were for market-related research, academic research and project management.
Details of consultancy services engaged by the department during the year are at Appendix 9.