EXPLANATORY STATEMENT
Financial Management and Accountability Act 1997, Section 31
Agreements for “Net Appropriations”
The instrument to which this explanatory statement relates
This explanatory statement relates to an instrument (the instrument) made under section 31 of the Financial Management and Accountability Act 1997 (FMA Act), which is entitled Net Appropriation Agreement for Australian Federal Police commencing 1 January 2005.
The legislative authority under which the instrument is made
Section 31 of the FMA Act enables the Minister for Finance and Administration (the Finance Minister) to enter into agreements with other Ministers for the purposes of items in Appropriation Acts that are marked “net appropriation”.
Section 31 of the FMA Act, together with certain standard provisions of the annual Appropriation Acts, (for example, section 10 of Appropriation Act (No.1) 2004-2005), allows departmental (and in select cases, administered) appropriation items to be increased by amounts received by an agency as specified in the agreement.
Subsection 31(3) of the FMA Act provides that an agreement may be for any period (that is, it need not relate to a particular Appropriation Act or Acts), including a period longer than a financial year. Generally agreements continue until circumstances require their renewal.
Subsection 31(4) of the FMA Act enables the Finance Minister to cancel or vary an agreement at any time without the consent of the other party.
Purpose and operation of the instrument
The instrument identifies the types of receipts which increase an existing appropriation for the Australian Federal Police. The instrument is given effect by the annual appropriation Acts, which provide that the relevant departmental or administered appropriation item is increased in accordance with the agreement. This enables the receipts to be spent by the agency.
For example, where an agency sells minor assets, such as its surplus office furniture and fittings, the amounts received from the sale will be available for expenditure by that agency. Without the agreement, any amounts received by the agency would not be available to be spent by the agency, without further appropriation by Parliament.
Notes on the instrument
Specific provisions within the annual Appropriation Acts give effect to the instrument. Therefore, the instrument only has effect while the relevant specific provisions exist in the annual Appropriation Acts.
Eligible receipts covered by the instrument are set out in clause 5.1 of the instrument.
Consultation
The Australian Federal Police is the agency affected by this instrument. The agency was provided with drafts of the instrument before the instrument was finalised 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).
Additional Information
Agreements made under section 31 of the FMA Act are not subject to the parliamentary disallowance and sunsetting provisions of the Legislative Instruments Act 2003: see item 19 in subsection 44(2) and item 17 in subsection 54(2) of the Legislative Instruments Act 2003.
Overview
The Financial Management and Accountability Act 1997 (FMA Act) was enacted to ensure that the financial management of Commonwealth entities is conducted in a manner that is consistent with sound financial principles and practices, and to promote accountability for financial management. The Act was introduced to address the need for a comprehensive legal framework governing the financial management of the Commonwealth and its entities, ensuring transparency, efficiency, and accountability. Enacted by the Parliament of Australia, the FMA Act establishes a robust system for the financial management and accountability of Commonwealth entities, with the overarching policy objective of promoting responsible financial management and ensuring that public funds are used effectively and efficiently. The Act allows the Minister for Finance and Administration to enter into agreements with other Ministers for items in Appropriation Acts that are marked "net appropriation," enabling departmental or administered appropriation items to be increased by amounts received by an agency as specified in the agreement. This ensures that agencies can utilise received funds for their intended purposes without requiring additional appropriation by Parliament.
Scope and Application
The Financial Management and Accountability Act 1997 (FMA Act) provides the legislative basis for the Net Appropriation Agreement for the Australian Federal Police, which came into effect from 1 January 2005. Section 31 of the FMA Act empowers the Minister for Finance and Administration to enter into agreements with other ministers concerning items in Appropriation Acts that are marked as “net appropriations.” This mechanism enables the Australian Federal Police to increase its appropriations by the amounts received from specified transactions, such as the sale of surplus office furniture and fittings, without requiring additional appropriation by Parliament. These agreements, which may extend beyond a single financial year, are not subject to the parliamentary disallowance or sunsetting provisions of the Legislative Instruments Act 2003, providing flexibility in their duration and management. The agreement is limited to internal government processes, and while the Australian Federal Police was consulted during the drafting, no further consultation was deemed necessary given the instrument's internal nature.
Key Provisions
Section 31 of the Financial Management and Accountability Act 1997 (FMA Act) allows the Minister for Finance and Administration to enter into agreements with other Ministers for items in Appropriation Acts marked as "net appropriation". These agreements enable departmental appropriation items to be increased by certain receipts, allowing the agency to spend these amounts without further appropriation by Parliament. The agreements can cover any period and are not necessarily tied to a specific financial year, continuing until circumstances require their renewal. The Finance Minister has the authority to cancel or vary these agreements at any time without consent from the other party, as stipulated in subsection 31(4) of the FMA Act.
Under the FMA Act, the agreements impose obligations on the parties involved. The Minister for Finance and Administration must negotiate and enter into agreements with relevant Ministers to increase appropriations based on specified receipts. The agency receiving the increased appropriation must ensure that the receipts fall within the types agreed upon and that the expenditure aligns with the terms of the agreement. The annual Appropriation Acts must include specific provisions that give effect to these agreements, ensuring the increased appropriations are legally recognised and can be spent by the agency.
Failure to comply with the terms of an agreement under section 31 of the FMA Act does not result in formal criminal or civil penalties as the agreements themselves are not legislative instruments subject to disallowance or sunsetting provisions under the Legislative Instruments Act 2003. However, any misuse of funds or non-compliance with the terms could potentially lead to internal administrative actions or financial penalties within the agency. The primary consequence of breaching an agreement is the loss of the ability to spend the specified receipts without further appropriation by Parliament, which could hinder the agency’s ability to manage its finances effectively.