EXPLANATORY STATEMENT

Issued by the authority of the Minister for Finance and Deregulation

Financial Management and Accountability Act 1997

Determination 2009/11 to establish a Special Account

Purposes of Determination 2009/11

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 Endowments 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 Endowments Special Account.

Special Accounts Generally

In accordance with the Constitution, all revenues or moneys raised or received by the Government of the Commonwealth form one Consolidated Revenue Fund (CRF) and may not be spent unless under an appropriation by the Parliament for the purposes of the Commonwealth.  A Special Account may be established by a determination that sets out the amounts that may be credited 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 amounts from the CRF to be spent on a purpose specified in the determination.

Determinations that establish Special Accounts, or vary determinations that establish Special Accounts, are subject to section 22 of the FMA Act.  Section 22 of the FMA Act requires the Finance Minister to table a copy of the establishing or varying determination in each House of Parliament.  Either House may disallow a determination within five sitting days of tabling.  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.

Special Accounts can be abolished by a determination of the Finance Minister.  However, there is no requirement to table such a determination.

Operation of Determination 2009/11

Purpose of the Defence Endowments Special Account

This Determination is required in order to establish a Special Account for expenditure in accordance with the conditions of each endowment.  At the time of this Determination, there are 36 separate endowments.

Some of the endowments are governed by formal trust deeds and are considered to be “charitable trusts”.  Others are donations in memory of deceased military members, established with the objective of promoting excellence within the Defence Force.  Typically, the estate of an Australian Defence Force member requires the establishment of an account, with interest earned on the account used for annual prizes and awards.  Some of these accounts were established up to 70 years ago.

Reasons for establishing a new Special Account

Upon commencement of the FMA Act on 1 January 1998, the Defence Endowments Account (the old Account) was established as a component of the Reserved Money Fund (RMF) in the Initial Determination to Establish Components of the Reserved Money Fund (the Initial Determination), signed by the delegate of the Minister for Finance and Administration on 31 December 1997.  The Financial Management Legislation Amendment Act 1999, which varied the FMA Act, converted the component of the RMF into a Special Account.  The current purpose of the old Account is for expenditure in accordance with the conditions of each endowment.

The Defence Endowments Special Account is required in order to give effect to changes that are required to the old Account, but which are not practical to make by variation to the old Account, due to the way in which the Initial Determination was structured. 

Changes required

As part of a program to enhance the clarity of Special Account Determinations, and to remove any areas of doubt over the scope of the purposes of Special Accounts, the following changes are being incorporated within the Determinations of all Special Accounts, where appropriate, and where the need for other variations arise:

• a provision to debit amounts relating to incidental activities.  This 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 where these expenses are not Budget funded.  The existing purpose clause would often allow the debiting of the Special Account for these costs, depending on the degree of directness of connection of the costs with other purposes of the Special Account.  The inclusion of the new incidental clause removes the need to obtain legal advice on the degree of directness of connection for individual transactions;
• a clause to allow for amounts to be repaid when another Act or law allows it.  This has always been permitted by section 28 of the FMA Act, but is now included in Determinations to simplify accounting for these transactions;
• a capacity to return excess amounts to the Budget (that is, reduce the balance of the Special Account without a real or notional payment).  This provision does not allow amounts to be transferred to another Special Account, or to be allocated for any other purpose that is not consistent with the purposes of the Special Account, and is included to ensure that these amounts are not set aside indefinitely; and
• notes that identify general credits and debits that can be made to Special Accounts, for information purposes, in reliance on other laws.

Limitations in the structure of the Initial Determination

It is not practical to vary the Initial Determination because the format of the Determination constrains the amount of information that can be included.   Accordingly, a new Account is being established to provide for the continuation of the activities of the old Account, the incorporation of the necessary changes, and to ensure that the Determination is as clear and informative as possible.

Consultation

The Department of Defence is the agency affected by this instrument. The agency was provided with drafts of the instrument and agrees with the form of the instrument. As the instrument is for internal machinery of government purposes only, no consultation was considered necessary with other persons (see sections 17 and 18 of the Legislative Instruments Act 2003).

Estimates of transactions on the Defence Endowments Special Account

1. Includes balance to be debited from the old Account and credited to the new Defence Endowments Special Account.