EXPLANATORY STATEMENT

Issued by the authority of the Minister for Finance and Administration

Financial Management and Accountability Act 1997

Determination 2005/09 to establish a Special Account

Purposes of Determination 2005/09

The attached instrument makes a determination under subsection 20 (1) of the Financial Management and Accountability Act 1997 (FMA Act) to establish a Special Account entitled Defence Materiel Special Account.  It also specifies the nature of amounts that may be credited to, and the purposes for which amounts may be debited from, the Defence Materiel Special Account.

Special Accounts Generally

In accordance with the Constitution, all revenues or moneys raised or received by the Executive Government of the Commonwealth form one Consolidated Revenue Fund (CRF) and may not be used unless in accordance with an appropriation by the Parliament for the purposes of the Commonwealth.  This determination establishes a Special Account, and sets out the amounts that may be credited to the Account and the purposes for which it may be debited.  Special Accounts established by determination are supported by an appropriation under section 20 of the FMA Act.  In effect, Special Accounts allow specified amounts from the CRF to be expended for a particular specified purpose.

The Finance Minister must table a copy of a determination relating to a Special Account in each House of Parliament.  Either House may disallow a determination within five sitting days of having been tabled.  If the determination is not disallowed, it comes into effect on the calendar day after the last day on which it could have been disallowed.  Regulation 10 of the Legislative Instruments Regulations 2004 preserves the disallowance provisions under section 22 of the FMA Act by exempting Special Account determinations from subsections 57(2) and 57(5) of the Legislative Instruments Act 2003.

The notes to the determination identify legislation and other laws that allow or require amounts to be credited to, or debited from, the Special Account.

Operation of the Determination 2005/09

Purpose of the Defence Materiel  Special Account

The determination is required in order to establish a Special Account, to enable the Defence Materiel Organisation (DMO) to support the Australian Defence Force’s capabilities.

The Defence Materiel Organisation is being established to support Defence capabilities through efficient and effective acquisition and through-life support of materiel, and to facilitate its evolution towards a more business-like model. As a prescribed agency, the Defence Materiel Organisation is financially autonomous from the Department of Defence and accountable under the FMA Act for the proper management of public money and public property within its control or custody.  It will be required to prepare separate and auditable financial statements, improving the financial transparency and accountability of the DMO.

The Special Account is required to hold amounts primarily received from the Department of Defence for the acquisition of materiel.  A Special Account provides a transparent framework and more appropriate level of accountability.  This is achieved through compulsory disclosure requirements including reporting in Portfolio Budget Statements, Consolidated Financial Statements and financial statements in agencies annual reports.  Parliamentary scrutiny, through the parliamentary disallowance requirements of this and any subsequent varying determinations assist in providing further appropriate transparency and accountability frameworks.

Clause 6 specifies the purposes for which the Special Account can be debited.

• Paragraphs 6(a), (b), (c), (d) and (e) describe the activities for which expenditure can be made from the Special Account. This is intended to cover all functions carried out by the agency under its outputs.
• Paragraph 6(f) allows administration costs, including such items as auditing, reporting, budgeting, accounting and information technology services incurred in the course of operating the Special Account, to be debited from the Special Account.
• Paragraph 6(g) gives the ability to reduce the balance of the Special Account without a corresponding payment.  It does not allow amounts to be transferred to another Special Account, or allocated for any other purpose, that is not consistent with the purposes of the Special Account.
• Paragraph 6(h) allows the Special Account to be debited, in a manner that would otherwise be permitted by section 28 of the FMA Act. It is included to simplify accounting for these transactions.

Consultation

The Defence Materiel Organisation, which will commence operations on 1 July 2005, is the agency affected by this instrument.  The Department of Defence is the agency that has been consulted on in the preparation of this instrument.  The Department of Defence was provided with drafts of the instrument before it was finalised and agree with the form of the instrument.  No community consultation was carried out as the instrument is for machinery of government purposes only (see sections 17 and 18 of the Legislative Instruments Act 2003).

Estimates of transactions on the Defence Materiel  Special Account