Standing Directions of the Minister for Finance May 2012 Update DOC file

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Standing Directions of the Minister for Finance May 2012 Update DOC file Powered By Docstoc
					   Standing Directions of the
 Minister for Finance under the
Financial Management Act 1994
 (as part of the Financial Management Package)




                  June 2003


                 (Updated May 2012)
Table of Contents

1     Introduction.................................................................................................... 3
    1.1     Preliminary ................................................................................................................ 5
    1.2     Background ............................................................................................................... 9
2     Financial Management Governance and Oversight .................................. 11
    2.1     Financial Code of Practice ...................................................................................... 13
    2.2     Financial Governance ............................................................................................. 15
    2.3     Financial Risk Management ................................................................................... 25
    2.4     Authorisations ......................................................................................................... 27
    2.5     Internal Audit ........................................................................................................... 29
    2.6     External Audit .......................................................................................................... 31
3     Financial Management Structure, Systems, Policies and Procedures .... 33
    3.1     Financial Management Structure ............................................................................ 35
      3.1.1           Public Sector Agency Financial Management Team Structure .................................. 35
      3.1.2           Chief Finance and Accounting Officer (CFAO) .......................................................... 36
      3.1.3           Policies and Procedures ............................................................................................ 36
      3.1.4           Chart of Accounts ...................................................................................................... 37
      3.1.5           Managing Outsourced Financial Services ................................................................. 38
    3.2     Information Technology Systems ........................................................................... 41
      3.2.1           Information Technology Management ....................................................................... 41
      3.2.2           Information Technology Operations ........................................................................... 41
      3.2.3           Security ..................................................................................................................... 43
      3.2.4           Development ............................................................................................................. 43
      3.2.5           Change Control ......................................................................................................... 44
    3.3     Education and Training ........................................................................................... 47
    3.4     Policies and Procedures ......................................................................................... 49
      3.4.1           Revenue .................................................................................................................... 49
      3.4.2           Cash Handling ........................................................................................................... 51
      3.4.3           Bank Accounts........................................................................................................... 53
      3.4.4           Cash Flow Forecasting .............................................................................................. 53
      3.4.5           Procurement .............................................................................................................. 54
      3.4.6           Expenditure ............................................................................................................... 56
      3.4.7           Employee Costs ........................................................................................................ 58
      3.4.8           Commission on Employee Payroll Deductions .......................................................... 59
      3.4.9           Physical and Intangible Assets .................................................................................. 60
      3.4.10          Liabilities .................................................................................................................... 61
      3.4.11          Reconciliations .......................................................................................................... 62
      3.4.12          Administration of Discretionary Financial Benefits ..................................................... 63
      3.4.13          Information Collection and Management ................................................................... 65
4     Financial Management Reporting ............................................................... 69
    4.1 Internal Financial Management Reporting .............................................................. 71
    4.2 Reporting Requirements in terms of Part 7 of the FMA .......................................... 73
    4.3 Other External Reporting ........................................................................................ 77
    4.4 Financial Performance Management and Evaluation ............................................. 79
    4.5 Financial Management Compliance Obligations ........................................................ 81
      4.5.1 Compliance with Directions ................................................................................................ 81
      4.5.2 Taxation ............................................................................................................................. 81
      4.5.3 Purchasing Card ................................................................................................................ 82
      4.5.4 Thefts and Losses.............................................................................................................. 84
      4.5.5 Risk Management Compliance .......................................................................................... 85
          4.5.5.1 Insurance ................................................................................................................. 86
      4.5.6 Treasury Risk Management ............................................................................................... 87
      4.5.7 Foreign Exchange Risk Management ................................................................................ 89
      4.5.8 Commodity Risk Management ........................................................................................... 91
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1 Introduction

The Standing Ministerial Directions (the Directions) are given pursuant to section 8 of the
Financial Management Act 1994 (FMA). They have legislative force and must be complied
with.




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1.1 Preliminary

Direction - Purpose and Application

The Directions support the FMA by specifying matters that must be complied with by
Government Departments and public bodies to:

   Implement and maintain appropriate financial management practices; and

   Achieve a consistent standard of accountability and financial reporting.

The Directions specify high-level requirements for financial management. This allows
Government Departments and public bodies to develop specific systems, procedures and
compliance practices, which must be:

   Tailored to their own situation; and

   Approved and monitored within their own governance requirements.

For the purposes of these Directions, Government Departments and public bodies are
collectively termed “Public Sector Agencies”.

Those parts of this document that are of binding legal effect are those parts under the
headings “Directions” and “Procedure”. The remaining parts are advisory in nature and
provide guidance in best practice.



Direction - Date of Effect

The Directions came into force on 1 July 2003. Until 1 January 2004 a Public Sector
Agency was exempt from full compliance with the Directions in Part 2 if it was in good faith
complying with each of those Directions to the greatest extent reasonably possible.



Direction - Definitions

“Accountable Officer” has the same meaning as in section 3 of the FMA.

“Business Rules” are the rules made by the Deputy Secretary, Budget and Financial
Management, Department of Treasury and Finance.

“Directions” mean these Standing Directions.

“Financial Reporting Directions” are directions given by the Minister for Finance for the
accounting treatment and reporting of financial transactions.

“Government Department” has the same meaning as “Department” as defined in section 3
of the FMA.

“Public Sector Agency” means any public body as defined in section 3 of the FMA or any
Government Department.




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“Responsible Body” means for a:

             Government Department, the Accountable Officer; and

             Every other Public Sector Agency, the board

In the event that a person or body is declared to be an authority for the purposes of the
definition of “authority” in section 3 of the FMA, anything in these Directions applying or
referring to a Government Department applies or refers also to that person or body, unless
a Direction explicitly provides otherwise.



Direction - Abbreviations

“AASB” means Australian Accounting Standards Board.

“ATO” means Australian Taxation Office.

“BFMG” means the Budget and Financial Management Guide.

“CFAO” means Chief Finance and Accounting Officer.

“CFO” means Chief Finance and Accounting Officer.

“DTF” means the Department of Treasury and Finance.

“FBT” means Fringe Benefits Tax.

“FMA” means the Financial Management Act 1994.

“FRD” means Financial Reporting Directions.

“GST” means Goods and Services Tax.



Direction - Delegation

(a)       Pursuant to section 7 of the FMA, the Minister for Finance delegates to the Deputy
          Secretary, Budget and Financial Management in DTF all relevant powers and
          functions of the Minister in sections 8, 50 and 51 of the FMA as necessary for the
          Deputy Secretary to:

               Give Financial Reporting Directions;

               Make Business Rules;

               Determine the rate of commission payable in respect of payroll deductions for
                health insurance (except in the case of Medibank);

               Stipulate the form of the Model Financial Report referred to in Direction 4.2;

               Require all Public Sector Agencies to include in the reports required by part 7 of
                the FMA or by these Directions details relating to particular matters or things
                (whether in doing so the Deputy Secretary is exercising the powers and
                functions in sections 8, 50 or 51 of the FMA);


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            provided that those Directions, rules or requirements are not inconsistent with
            anything in these Directions, and

           Exercise any power referred to in section 41A of the Interpretation of Legislation
            Act 1984 in respect of any Financial Reporting Direction, Business Rule,
            determination, stipulation or requirement.

(b)    At least annually, a Financial Reporting Direction will be given stipulating which
       Australian accounting standards (AAS’s and AASB standards) and Urgent Issues
       Group Consensus Views are applicable for a particular reporting period.

(c)    Pursuant to section 7 of the FMA, the Minister for Finance delegates to each
       Accountable Officer all relevant powers and functions of the Minister in section 8 of
       the FMA as necessary for the Accountable Officer to determine the rate of
       commission payable in respect of voluntary deductions other than for health
       insurance.



Direction - Exemptions

The Minister for Finance may by written direction exempt persons or things, or a class of
persons or things in a specified case or class of case, from the provisions of the Directions,
whether unconditionally or on specified conditions or conditions additionally imposed and
either wholly or to such an extent as is specified or otherwise determined.

Where an exemption is sought, the application for exemption must be in writing, state the
reasons why the exemption is necessary and include specification of proposed alternative
action or procedures.

Alternative action or procedures must not be implemented until approved by the Minister
for Finance.

Each Accountable Officer must maintain a register of exemptions granted by the Minister
for Finance and make the register available for inspection by the Auditor-General.

Exemptions will be evaluated on a case-by-case basis by DTF.

Further information on Exemptions can be located on the Department of Treasury and
Finance website (http://dtf.vic.gov.au). Only agencies that are connected to the Victorian
Government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.




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8                                     Department of Treasury & Finance
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1.2 Background
Structure of the Directions

The Directions have been drafted in consideration of leading edge financial management
practices.

The Directions are now based around three key components of sound financial
management as illustrated below.


                                     Key components of leading
                                     edge financial management



                                 Financial
                                 Financial      Financial
                                                Financial     Financial
                                                              Financial
                               Management
                               Management     Management
                                              Management     Management
                                                             Management
                               Governance
                               Governance       Structure,
                                                Structure,    Reporting
                                                              Reporting
                                    and          Systems
                                                 Systems
                                Oversight
                                Oversight     Policies and
                                              Policies and
                                               Procedures
                                               Procedures




Financial Management Governance and Oversight

Governance is about the processes by which a Public Sector Agency is directed, controlled
and held to account. The Directions on financial management governance and oversight
set standards for Public Sector Agencies, which should be incorporated as fundamental
elements in an overall governance framework.

Financial Management Structure, Systems, Policies and Procedures

The Directions for financial management structure, systems, policies and procedures set
standards for all Public Sector Agencies to achieve sound systems of internal control to
support financial management.

Financial Management Reporting

The Directions for financial management reporting set standards for Public Sector
Agencies to assist them in measuring and managing performance and to ensure financial
management reporting is consistent with applicable statutory reporting obligations.

Presentation of each Direction

Each Standing Direction is comprised of the following:

      Background - (where relevant) this is an explanatory section, which seeks to
       provide the user with an understanding of the compliance obligation;

      Direction – A statement which sets out the compliance obligation (this is
       mandatory in nature);

      Procedure - this sets out the method of achieving the compliance obligation and is
       mandatory in nature; and




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    Guidelines – these serve to explain and clarify the underlying principles and
     objectives of the Direction and provide any relevant information to enable the user to
     interpret the requirements in the correct context.

     The Guidelines are not mandatory in application and are to be used as
     reference only.

    Further Supplementary Material - where appropriate. This information can be
     found on the Department of Treasury and Finance website (http://dtf.vic.gov.au).
     Please contact your portfolio coordinator directly if you have problems with access.
     This supplementary material in the Directions is denoted by the following symbol
        . This was previously referred to as ‘Guidance Material’.

     The Supplementary Material is not mandatory in application and is to be used
     as reference only.

    Rules – these serve to explain and clarify the underlying principles and objectives of
     specific Directions and is denoted by the following symbol     . They also enable the
     user to interpret the requirements in the correct context.

     Rules are to be used in assessing compliance with specific Directions.




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2 Financial Management
Governance and Oversight

“Broadly speaking, corporate governance generally refers to the processes by which
                                                               1
organisations are directed, controlled and held to account” , and is underpinned by
principles of openness, integrity and accountability. “Governance is concerned with
structures and processes for decision-making, accountability, control and behaviour at the
                      2
top of organisations” . “It influences how the objectives of an organisation are set and
                                                                                 3
achieved, how risk is monitored and assessed and how performance is optimised.”

Strong governance and oversight of a Public Sector Agency’s financial management is a
core component of its broader governance framework.

The Directions on financial management governance and oversight have been prepared in
light of the principles of good corporate governance and best practice recommendations for
listed companies and in line with community expectations, which set a necessarily high
standard for Public Sector Agencies.




1
    ANAO Discussion Paper, Corporate Governance in Commonwealth Authorities and Companies, 1999
2
    IFAC, Governance in the Public Sector: A Governing Body Perspective, 2001
3
  ASX Corporate Governance Council, Principles of Good Corporate Governance and Best Practice
Recommendations, March 2003


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12                                    Department of Treasury & Finance
                                                    Updated May 2012
 2.1 Financial Code of Practice

Background

Public Sector Agencies are expected to develop and implement a financial code of practice
on matters related to the probity of their financial management.

The code of practice will be Public Sector Agency specific and will reflect existing Public
Sector Agency policies. It will also alert or serve to remind personnel of the relevant
external requirements applicable to the Public Sector Agency.



Direction

Public Sector Agencies must implement and maintain a financial code of practice.



Procedure

(a)      A Public Sector Agency is required to have a financial code of practice setting out
         a cohesive statement of the Public Sector Agency’s internal processes to ensure
         probity in the Public Sector Agency’s financial management. If the Public Sector
         Agency has an existing Code of Practice, this will need to be reviewed against the
         requirements in this Direction and updated as required to ensure compliance.

(b)      Matters to be covered in the financial code of practice include:

             Independence;

             Tendering;

             Procurement;

             Conflicts of interest;

             Use of credit cards;

             Personal relationships with the Public Sector Agency’s customers and
              providers;

             Integrity;

             Accountability;

             Corporate opportunities;

             Confidentiality;

             Fair dealing;

             Protection and proper use of the Public Sector Agency’s assets; and

             Encouraging the reporting of unlawful or unethical behaviour.


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(c)   Each Public Sector Agency is required to develop and maintain an appropriate
      internal management structure with responsibility for:

         Implementing the code of practice;

         Determining the employees required to comply with the code of practice
          (”relevant employees”) and reviewing this on an annual basis;

         Communicating the requirements to all relevant employees and the initial
          management of any queries raised by those employees;

         Requiring and monitoring relevant employees’ compliance with the code of
          practice; and

         Initiating appropriate action for breaches of the code of practice.




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2.2 Financial Governance

Direction
A Public Sector Agency must establish robust and transparent financial governance
policies and procedures directed to the oversight of its financial management which should
be incorporated as fundamental elements of a Public Sector Agency’s overall governance
framework.

Particular attention must be paid to the systems of financial reporting, risk management,
internal control and the adequacy of management reporting.



Procedure
(a.)     The governance and oversight of the financial management of a Public Sector
         Agency is the responsibility of the Responsible Body.

(b.)     The Responsible Body, in its financial oversight and governance role is to:

             Review all financial reports that are provided to parties external to the Public
              Sector Agency, prior to their release but subsequent to the approval of the
              reports by the CFAO in accordance with Direction 4.3(c);

             Work with management to develop the strategic directions for the Public
              Sector Agency, set performance indicators, set performance targets, review
              performance management information and reports against those targets;

             Monitor and oversee the financial performance of the Public Sector Agency on
              an ongoing basis ensuring appropriate human and financial resources are
              available;

            Oversee and ensure that procedures are in place that will result in effective
             and efficient budgeting;

            Ensure a balance of authority so that no single individual has unfettered
             powers over the finances of the Public Sector Agency;

            Ratify the appointment or removal of the CFAO, where appropriate;

            Review, ratify and oversee the Public Sector Agency’s systems of risk
             management and financial internal controls;

            Approve and monitor the progress of major capital expenditure, capital
             management, acquisitions and divestitures;

            Meet often enough to undertake its financial governance role effectively, if it
             comprises more then one person;

            Establish appropriate arrangements to ensure that public funds and resources
             are used economically, efficiently, effectively, with due propriety, and in
             accordance with the statutory or other authorities that govern their use; and

            Undertake an annual review of its own performance in respect of its financial
             governance.

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       see Guideline 1 below

(c.)   The Responsible Body may, at its sole discretion, formally delegate some of its
       responsibilities as set out in (b) to an Audit Committee, Finance Committee or
       equivalent. However:

          This will not diminish the ultimate responsibility of the Responsible Body to
           oversee the financial performance of the Public Sector Agency and to ensure
           the integrity of the financial reporting; and

          The Responsible Body is to retain oversight responsibility for the relevant
           actions and activities of its delegates.

(d.)   For Public Sector Agencies (excluding Government Departments), on an annual
       basis the Accountable Officer and the CFAO should formally state to the
       Responsible Body that:

          The Public Sector Agency’s financial reports present fairly, in all material
           respects, of the Public Sector Agency’s financial condition and operational
           results in accordance with the requirements of the FMA including the
           Directions;

          The financial report is founded on a sound system of risk management and
           internal compliance and control which implements the policies adopted by the
           Responsible Body; and

          The Public Sector Agency’s risk management and internal compliance and
           control system is operating efficiently and effectively in all material respects.



Audit Committees

(e.)   Each Public Sector Agency must, unless an exemption has been obtained, appoint
       an Audit Committee to oversee and advise the Public Sector Agency on matters of
       accountability and internal control affecting the operations of the Public Sector
       Agency. Government Departments are not eligible for an exemption.

       see Guideline 2 below

(f.)   At least two members of the Audit Committee must be independent and these
       members are to be identified as independent in the Public Sector Agency’s annual
       report.

       see Guideline 3 below

(g.)   Where the Responsible Body is a board the Audit Committee is to be comprised of
       at least three members all of whom are non-executive directors and a majority of
       whom are to be independent.

(h.)   If the Responsible Body is supported in its financial management responsibilities
       by an Audit Committee and/or any other committee:

          The committee should have a Charter that clearly sets out the role and
           responsibilities, composition, structure and membership requirements;

          The Charter must be approved by the Responsible Body and provided to each
           member of the Committee; and


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             The Charter must be formally reviewed by the Audit Committee periodically,
              but at least every three years, with recommendations for updates approved by
              the Responsible Body.

(i.)     Each committee is to:

             Be adequately resourced;

             Be of sufficient size, independence and technical expertise to discharge its
              mandate effectively;

             Undertake an annual review of its own performance and report the results of
              that review to the Responsible Body;

             Be fully accountable to the Responsible Body;

             Meet often enough to discharge its role and responsibilities effectively and no
              less than four times a year; and

             Minute the meetings reflecting work done by the committee to address its roles
              and discharge its responsibilities. The minutes are to be provided to the
              Responsible Body at the next meeting or, where the Responsible Body is not a
              board, a defined and agreed interval, after each Audit Committee meeting.

         see Guideline 4 below

(j.)     Where the Responsible Body has been exempted from creating an Audit
         Committee the Responsible Body must:

             Actively assume all the usual roles and responsibilities of an Audit Committee
              including those responsibilities specifically set out in these Directions; and

             Take appropriate steps to ensure these responsibilities are fully discharged.

         see Guideline 5 below

(k.)     The Accountable Officer and the CFAO are not to be members of their own Public
         Sector Agency’s Audit Committee but are to attend relevant aspects of Audit
         Committee meetings by standing invitation.

(l.)     Unless an exemption has been obtained the Chairperson of the Audit Committee is
         to be one of the independent members of that Committee.

(m.)     Unless an exemption has been obtained the Chairperson of the Responsible Body
         must not also be the Chairperson of the Audit Committee.



Member qualifications of Audit Committees

(n.)     All members of a Public Sector Agency Audit Committee must have and maintain:

             Basic financial literacy;

             Reasonable knowledge of the Public Sector Agency’s own risks and controls;

             Integrity, objectivity, accountability, honesty and openness;



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          Dedication of time and effort;

          An enquiring mind;

          Independence of judgement;

          Relevant industry knowledge; and

          Business experience in the public or private sector.

       see Guideline 6 below

(o.)   Members of an Audit Committee who do not have the requisite level of financial
       literacy and/or industry knowledge at the time of their appointment must undertake
       induction training before attending an Audit Committee meeting and additional
       training, as appropriate, to raise their competency to the level described in (n)
       above. As a minimum requirement the prescribed level of competence must be
       achieved within the first six months of membership of that Committee.

(p.)   At least one member of an Audit Committee must have appropriate expertise in
       financial accounting or auditing.

       see Guideline 7 below

(q.)   All members of Audit Committees are required to take appropriate and timely
       action to ensure they have the requisite understanding of the Public Sector
       Agency’s structure, operations and financial management risks to enable them to
       discharge their responsibilities.

(r.)   The CFAO is to provide all newly appointed Audit Committee members with all
       necessary and relevant information regarding the Committee’s responsibilities and
       the Public Sector Agency’s operations and background to enable them to
       understand the Public Sector Agency and their duties and responsibilities. The
       CFAO is to agree which information is necessary and relevant with the Audit
       Committee Chairman.

(s.)   Membership of the Audit Committee is to be reviewed by the Responsible Body on
       a periodic basis, and at least every three years.



Relationship of Audit Committee with Management, Advisors and Experts

(t.)   The Audit Committee must have direct access to the internal and external auditors
       without management present.

(u.)   The Audit Committee must have:

          Direct access to the Accountable Officer, the CFAO and the Public Sector
           Agency’s management, through the Accountable Officer, when required; and

          The right to seek explanations and additional information.

(v.)   The Audit Committee must be able to seek independent, expert advice to assist it
       in undertaking its oversight responsibilities.




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Requirements for Government Departments

(w.)     For Government Departments, on an annual basis the CFAO should formally state
         to the Audit Committee and the Accountable Officer that:

             The financial reports present fairly, in all material respects, of the Public Sector
              Agency’s financial condition and operational results in accordance with the
              requirements of the FMA including the Directions;

             The financial report is founded on a sound system of risk management and
              internal compliance and control which implements the policies adopted by the
              Accountable Officer (as Responsible Body); and

             The Department’s risk management and internal compliance and control
              system is operating efficiently and effectively in all material respects.

(x.)     Government Departments are required to monitor and report to the Minister for
         Finance, through the Department of Treasury and Finance, on their compliance
         with the requirements of the FMA and the Directions.

(y.)     Government Departments are required to obtain and report to the Minister for
         Finance, through the Department of Treasury and Finance, on compliance with the
         requirements of the FMA and the Directions of all Public Sector Agencies within
         their portfolio.

(z.)     Each Government Department must endeavour to identify instances of non-
         compliance with taxation legislation by itself or a Public Sector Agency within their
         portfolio and it must inform the Minister for Finance, through the Department of
         Treasury and Finance, of instances of non-compliance so identified.

         see Guideline 8 below



Guidelines

Guideline 1
(i).     External financial reports reviewed by the Responsible Body will typically include:

             Annual budgets, forward estimates and forecasts; and

             Other related reports, in particular significant financial reporting to external
              parties including other Public Sector Agencies.

(ii).    It is recommended that the Responsible Body’s oversight of a Public Sector
         Agency’s financial performance be based on periodic financial information and
         associated performance indicators. In discharging its responsibilities it is
         anticipated that the Responsible Body will:

             Monitor performance against targets incorporated into budget papers,
              business plans, targets, forecasts and similar;

             Make appropriate enquiries to understand the reasons and implications for
              divergences between actual and expected performance;




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              Ensure it has sufficient information to assess management initiatives, to
               correct or mitigate unfavourable results and to reinforce or enhance favourable
               results;

              Approve and monitor management’s            actions     to   correct   or   mitigate
               unfavourable results; and

              Review and authorise the release of financial information to ensure it:

               o    Is factual;

               o    Does not omit material information; and

               o    Is expressed in a clear, balanced and objective manner that allows
                    stakeholders to assess the impact of the information on their decision-
                    making.

(iii).   It is recommended that where the Responsible Body has a Charter or equivalent
         document, it should clearly articulate the role of the Responsible Body and the
         responsibility and accountability relationships between the Minister, the Responsible
         Body, the Accountable Officer and the CFAO in financial management.

(iv).    There is nothing in these Directions that prevents the operational aspects of the
         Responsible Body’s oversight and governance role being delegated to management
         in accordance with Direction 2.4.



Guideline 2
(i).      An Audit Committee may be a committee of the Responsible Body or be appointed
          by the Responsible Body to undertake, among other functions, the oversight of:

              Financial performance;

              The financial reporting process;

              The scope of work, performance and independence of the internal auditor;

              Ratification of the engagement and dismissal by management of any chief
               internal audit executive;

              The scope of work and performance of the external auditor;

              The operation and implementation of the risk management framework;

              Matters of accountability and internal control affecting the operations of the
               Public Sector Agency;

              The effectiveness of management information systems and other systems of
               internal control;

              The acceptability, disclosure of and correct accounting treatment for significant
               transactions which are not part of the Public Sector Agency’s normal course of
               business;

              The sign-off of accounting policies; and




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                  The specific matters to which it is required to direct its attention as set out in
                   2.3 Financial Risk Management, 2.5 Internal Audit and 2.6 External Audit.

(ii).        The role may, at the Public Sector Agency’s discretion, be extended to cover other
             matters appropriate for the consideration of such a committee.



Guideline 3
(i).     With respect to Committees, an independent person is one who is independent of
         the management of the Public Sector Agency, and:

                Within the last three years has not been employed in an executive capacity by
                 the Public Sector Agency or a related organisation or been a director after
                 ceasing to hold such employment;

                Within the last three years, has not been a principal of a material professional
                 advisor or a material consultant to the Public Sector Agency or a related
                 organisation, or an employee materially associated with the service provider;

                Is not a material supplier or customer of, the Public Sector Agency, or a related
                 organisation or an officer or otherwise directly or indirectly associated with a
                 material supplier or customer;

                Has no material contractual relationship with the Public Sector Agency or a
                 related organisation other than as Committee member of the Public Sector
                 Agency;

                Has not served on the Responsible Body (if it is a board) or the Committee for a
                 period which could, or could reasonably be perceived to materially interfere with
                 the person’s ability to act in the best interests of the Public Sector Agency; and

                Is free from any interest and any business or other relationship which could, or
                 could reasonably be perceived to, materially interfere with the Committee
                 member’s ability to act in the best interests of the Public Sector Agency.

(ii).    Family ties and cross-directorships may be relevant in considering interests and
         relationships which may compromise independence.

(iii).   In the context of these guidelines “materiality” should be considered from the
         perspectives of both the Public Sector Agency and the individual Committee
         member/candidates.



Guideline 4
(i).     The role and responsibilities of each Committee is to be set out in its Charter and
         should be:

                 Sufficiently detailed to ensure there is:

                  o    No ambiguity;

                  o    Clear guidance on key aspects of the committee’s operations; and

                  o    No overlap in the activities of individual committees.


Department of Treasury and Finance                                                                 21
Updated May 2012
              Regularly reviewed for relevance and consistency with the needs of the
               Responsible Body.




(ii).       In addition:

             An annual programme is to be prepared detailing the number, date, time and key
              matters for attention at each meeting;

             Agendas and papers should be prepared and circulated in advance of each
              Committee meeting and in sufficient time for members of the committee to read
              and absorb their contents; and

             Committee members should undertake an annual evaluation of the performance
              of the Committee and report their conclusions to the Responsible Body.



Guideline 5
Where an exemption to create an Audit Committee has been granted, the Responsible
Body itself should actively seek to evidence the discharge of all the Public Sector Agency’s
financial oversight and governance obligations. Meeting the requirements of this Direction
may include the Responsible Body meeting specifically in a separate meeting to address
financial management issues.



Guideline 6
With respect to the qualifications of members of the Audit Committee:

(i).    Basic financial literacy is defined as the ability to read and understand financial
        statements, including financial statements, including the income statement, balance
        sheet, statement of recognised income and expense and cash flow statement. This
        may also include an understanding of the following, where a Public Sector Agency is
        subject to their impact:

             Generally Accepted Accounting Principles (GAAP);

             Financial Reporting Directions;

             Budget Memoranda; and

             Budget and Financial Management Guide (BFMG) published by the Department
              of Treasury and Finance.

(ii).   All Audit Committee members should have access to updated copies of the above
        material and undertake periodic financial reporting and other relevant
        updates/training to ensure they stay current as to relevant developments in
        accounting and finance within the Public Sector Agency.




22                                                               Department of Treasury & Finance
                                                                               Updated May 2012
Guideline 7
Appropriate expertise may have been developed from one or a combination of:

   Relevant past employment experience in an accounting profession;

   Requisite professional qualification in accounting; or

   Comparable experience with financial oversight responsibilities.

Guideline 8
The Department of Treasury and Finance will provide detailed in Taxation Compliance
Rules to assist Public Sector Agencies to meet their compliance obligations in relation to:

   Australian Business Number (ABN);

   Goods and Services Tax (GST);

   Pay As You Go (PAYG);

   Fringe Benefits Tax (FBT);

   Deductible Gift Recipient (DGR);

   Income Tax Exempt Charity (ITEC); and

   Energy Credits Scheme.

Each Public Sector Agency is accountable for meeting its Commonwealth tax obligations in
its own right.

More information on the Taxation Compliance Rules can be found on the Department of
Treasury and Finance website at http://dtf.vic.gov.au




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24                                    Department of Treasury & Finance
                                                    Updated May 2012
2.3 Financial Risk Management

Background

Enterprise-wide risk management establishes processes for identifying, analysing,
monitoring and managing these risks and opportunities which could prevent a Public
Sector Agency from achieving its business objectives. It includes making links between
risks and rewards and resource priorities. Risk management involves putting control
activities in place to manage risk and opportunities throughout the Public Sector Agency by
developing risk management plans which cover the full range of a Public Sector Agency’s
activities including its financial management.

This Direction assumes that a Public Sector Agency has taken appropriate steps to
introduce an approach to enterprise-wide risk management that is appropriate to the Public
Sector Agency and requires that a sufficient level of attention be given to the risks
associated with its financial management.



Direction

An effective approach for the identification, assessment, monitoring and management of
financial management risks must be established and maintained as part of the Public
Sector Agency’s overall risk management framework.



Procedure

(a.)     The Responsible Body must:

             Ensure there is a financial risk management policy and internal control system
              in place which addresses the risks associated with the financial management
              of the Public Sector Agency and which clearly articulates the Public Sector
              Agency’s expectations and internal accountabilities for management of those
              risks including the roles and respective accountabilities of the Responsible
              Body, Audit Committee, management and internal audit;

             Ensure management has implemented an effective framework to proactively
              identify, assess, monitor, manage and report, on an ongoing basis, the
              significant financial risks to which the Public Sector Agency is exposed to as a
              result of, and in the course of its activities and responsibilities;

             Have a clear understanding of the nature, likely impact and potential
              consequences of the significant financial management and related risks facing
              the Public Sector Agency and be informed of any significant changes in these;

             On a regular basis and no less than annually, critically appraise and challenge
              the financial risk profile prepared by management to enable it to make an
              informed assessment about its completeness and accuracy and the
              appropriateness of the arrangements in place for managing and monitoring
              those risks;

             Provide clear guidance on the level and categories of financial management
              risk it regards as acceptable for the Public Sector Agency;


Department of Treasury and Finance                                                          25
Updated May 2012
          Provide oversight and supervision of financial management risks and the
           implementation of the related management plans/treatment strategies; and

          Regularly, and no less than annually, review the effectiveness of the Public
           Sector Agency’s system of risk management and internal control.

(b.)   A Public Sector Agency must implement and maintain an effective and ongoing
       process to identify risks associated with the financial management of the Public
       Sector Agency, assess their likelihood and potential impact under a varied set of
       assumptions and proactively manage those risks. This is expected to include a
       framework for:

          Identifying the financial risks related to the Public Sector Agency’s objectives
           as detailed in its strategic plan;

          Identifying new financial risks as they emerge and changes in previously
           identified risks;

          Deciding what initiatives, programs or other actions are needed to deal with
           the financial risks in a positive, proactive, cost effective way;

           Identifying or designing and implementing financial controls to ensure the
            actions are carried out as planned;

           Ensuring appropriate information systems and systems of internal control exist
            to facilitate reporting on financial risk exposures and mitigation strategies;

           Monitoring the implementation and operation of the financial risk management
            process and reporting to the governing body; and

           The preparation of a list of annual action items to be reviewed and discussed
            by the Responsible Body of the Public Sector Agency.



Guideline
For risk management requirements, refer to Direction 4.5.5 Risk Management Compliance.




26                                                            Department of Treasury & Finance
                                                                            Updated May 2012
2.4 Authorisations

Direction

Each Public Sector Agency must establish and maintain authorisations covering the overall
financial management of the Public Sector Agency, and must establish and maintain
authorisations covering the creation of financial obligations (including contingent liabilities
and obligations) on behalf of the Public Sector Agency.

These authorisations must ensure that financial management and the creation of financial
obligations are undertaken by staff with appropriate levels of authority and understanding
of business operations. Authorisations must be to positions rather than specific individuals,
and must be to employees of the Public Sector Agency.

In the case of a Government Department, the Responsible Body for the purposes of this
Direction is the Minister administering that Department. The Minister of a Government
Department may delegate to the Secretary of that Department some or all of the powers
and responsibilities of a Responsible Body given by this Direction, but only up to the
Accreditation Limit applicable to that Secretary’s Department as determined by the
Victorian Government Purchasing Board’s purchasing accreditation of that Department.



Procedure

(a.)     The Responsible Body must give clear financial authorisations to specific positions
         within the Public Sector Agency.

(b.)     All authorisations must be given so as to cease immediately upon the change in
         name of the specified position or a substantial and material change in the duties of
         the position.

(c.)     The authorisations are to be retained pursuant to the relevant legal requirements
         for document retention and record keeping.

(d.)     Where more than one financial authorisation is assigned to a particular position
         internal control procedures must not be compromised.

(e.)     A register of financial authorisations must be established and maintained.

         see Guideline 1 below

(f.)     The Responsible Body must review the Public Sector Agency’s authorisations and
         the register of financial authorisations annually.

(g.)     The Responsible Body must at least annually review the categories and types of
         financial authority and make any necessary changes.

(h.)     A financial authorisation cannot be given to another position by the person
         authorised.

(i.)     An authorisation cannot be given to a contractor or consultant.

(j.)     Audit trails must be maintained to demonstrate compliance with this direction.



Department of Treasury and Finance                                                          27
Updated May 2012
Requirements for Government Departments

(k.)       In paragraphs (a), (f) and (g), “Responsible Body” in the case of a Government
           Department means the Minister administering the Department.

(l.)       The Minister administering a Government Department may delegate to the
           Secretary of that Department some or all of the powers and responsibilities of the
           Responsible Body under this Direction 2.4, other than the power to give financial
           authorisations for the creation of obligations for any amount exceeding the
           Accreditation Limit applicable to that Secretary’s Department as determined by the
           Victorian Government Purchasing Board’s purchasing accreditation of that
           Department.

           see Guideline 2 below




Guideline 1

The register of financial authorisations should contain the following details:

          Transaction type, for example financing, investing and operational types;

          List of positions holding financial authority for each transaction type;

          Dollar caps for each transaction or authorisation type;

          List of staff names holding positions (this should be regularly updated and
           communicated to all relevant staff including the holders of authorised positions and
           members of the financial management team); and

          Specimen signatures for each holder of an authorised position. Signatures may be
           in an electronic format.

Mechanisms must be in place to enable continuous and efficient running of the Public
Sector Agency in the absence of the holders of an authorised position. A person acting in a
position has the authority of that position.

In the event of a total restructure of a Public Sector Agency (for this purpose “total
restructure” means a restructure affecting 50% or more of the positions in the Public Sector
Agency), financial authorisation should be re-assessed and re-approved within one
calendar month.



Guideline 2

In the case of a Government Department, the Relevant Minister for that Department may:

          confer any limit on departmental officers;

          delegate to the departmental secretary the power to issue authorisations to
           departmental officers up to the Victorian Government Purchasing Board's
           accreditation limit for that department; or

          do both of these things.


28                                                                   Department of Treasury & Finance
                                                                                   Updated May 2012
2.5 Internal Audit

Background

Internal audit is commonly defined as an independent appraisal activity within a Public
Sector Agency, for the review of operations as a service to the Responsible Body and
management. It is a control which functions by measuring and evaluating the effectiveness
of other controls.

Internal audit is a key assurance mechanism available to the Responsible Body to support
the discharge of its governance and oversight responsibilities.

Public Sector Agencies are required to establish, maintain and resource an internal audit
function. The work is to be carried out by suitably qualified staff, independent of
management and free of operational duties.

Where an exemption is granted the Responsible Body must take alternative steps to
secure an appropriate level of assurance from alternative in-house assurance activities
and/or compliance functions that are sufficiently robust and rigorous.

For simplicity the term internal audit is used in these Directions to encompass both in-
house internal audit and the outsourcing of the internal audit function to an appropriately
qualified third party.



Direction

Each Public Sector Agency must, unless an exemption has been obtained, establish and
maintain an adequately resourced independent internal audit function appropriate to the
needs of the Public Sector Agency. Government Departments are not eligible for an
exemption.



Procedure

(a.)     An internal audit charter is to be approved by the Audit Committee and is to:

             Provide for the internal audit function to report to senior management;

             Provide for the internal auditor to have direct access to the Chairman of the
              Audit Committee;

             Provide for internal audit function to have full, free and effective access at all
              reasonable times to all records, documents and employees of the Public
              Sector Agency and the right to seek information and explanations; and

             Set out the independent status of the internal audit function and its personnel.

(b.)     An annual internal audit plan is to be developed by the internal auditor to address
         relevant elements of the Public Sector Agency’s risk profile.

(c.)     The internal audit plan is to be approved by the Audit Committee.



Department of Treasury and Finance                                                           29
Updated May 2012
(d.)       On an annual basis the Audit Committee is to:

               Review the adequacy and focus of the internal audit work plan and its fit with
                the Public Sector Agency’s risk profile and the work of the external auditors;

               Review the internal audit function’s performance, its authority, the adequacy of
                its resources and the proposed allocation of those resources;

               Take steps to confirm that the internal auditor has not been unduly influenced
                by management or experienced any problems with management; and

               Meet separately and privately with management and the internal auditors if
                necessary to ensure free, frank and open communications.

(e.)       In addition the Audit Committee should make appropriate enquiries to:

               Approve and review management’s proposals as to how the Public Sector
                Agency plans to respond to advice received from the internal auditor and direct
                management accordingly;

               Monitor actions taken by management to resolve issues raised by internal
                audit; and

               Advise management to adopt and address the accepted recommendations
                from internal audit on a timely basis.

           see Guideline below



Guideline

Specific matters to which consideration will be given in determining whether an exemption
is to be granted include:

      The Public Sector Agency’s size and scale;

      The Public Sector Agency’s complexity/diversity;

      The nature of the Public Sector Agency’s business in terms of the risk exposure of the
       business;

      Its overall risk profile;

      Its financial risk management profile;

      Relevant external issues;

      Public Sector Agency changes;

      The history of past issues and incidents;

      The existence of viable alternative mechanisms to provide adequate assurance on
       matters of compliance and the operation of internal controls; and

      The alternative assurance and compliance mechanisms on which the Responsible
       Body proposes to rely.



30                                                                 Department of Treasury & Finance
                                                                                 Updated May 2012
2.6 External Audit

Background

Under the Audit Act 1994, the Auditor-General is responsible, on behalf of the Parliament
for the external audit of the financial operations and resource management of the Victorian
Public Sector. Accordingly the primary role of the Auditor-General is to provide information
and audit assurance to the Parliament, independently of Public Sector Agencies and the
Government.

An open, honest and effective working relationship will facilitate the work of the Auditor-
General and maximise the benefits of the external audit process for the Public Sector
Agency.



Direction

Public Sector Agencies must establish and maintain a constructive, open working
relationship with the Auditor-General and his duly appointed agents and representatives.



Procedure

(a.)     The Audit Committee is required to take appropriate steps to ensure all members
         have a clear and detailed understanding of and are satisfied with the:

            Scope of work to be undertaken by the external auditor;

            Audit process; and

            Overall audit approach.

(b.)     All external audit reports including performance audits completed by the Auditor-
         General or his or her agent are to be considered by the Audit Committee.

(c.)     The Auditor-General or his or her representative is to be invited to attend relevant
         meetings, or relevant parts of meetings, of the Audit Committee as an observer.

(d.)     At appropriate times during the course of each year the Audit Committee is to meet
         with the Auditor-General or his or her agent or representative to:

            Discuss the proposed audit objectives with a view to eliminating duplication of
             audit activities with the internal audit function;

            Obtain a briefing on the proposed external audit process;

            Understand the Auditor’s views on any accounting issues which may impact on
             the financial statements; and

            Discuss the outcomes of the external audit.

(e.)     The Audit Committee is to meet privately with the Auditor-General or his or her
         agent at least once a year to ensure free, frank and open communication.


Department of Treasury and Finance                                                         31
Updated May 2012
(f.)   The Audit Committee is to:

          Recommend how the Responsible Body should act on advice received from
           external auditors and ensure management take appropriate action;

          Monitor actions taken by management to resolve issues raised by external
           audit;

          Monitor whether accepted recommendations of the external auditors are
           adopted and addressed by management on a timely basis;

          Investigate the reasons for any material adjustments to the accounts; and

          Review the impact of actions taken by management intended to resolve
           issues.

(g.)   The Responsible Body should ensure that all staff in the Public Sector Agency
       adopt a cooperative and conservative approach with the external auditors on
       relevant auditing matters.




32                                                            Department of Treasury & Finance
                                                                            Updated May 2012
3 Financial Management Structure,
  Systems, Policies and
  Procedures

A Public Sector Agency’s system of internal control is designed to support the
effectiveness and efficiency of operations, to deliver reliable internal and external reporting,
and achieve compliance with laws and regulations. Underpinning the system of internal
control is the financial management structure, systems, policies and procedures that
contribute to reliable financial information and to the safeguarding of assets, including
prevention and detection of fraud.

The Accountable Officer and, for Public Sector Agencies other than Government
Departments, the Responsible Body are responsible for the system of internal control.

The Directions for financial management structure, systems, policies and procedures set
minimum standards for Public Sector Agencies to achieve sound systems of internal
control to support financial management.




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34                                    Department of Treasury & Finance
                                                    Updated May 2012
3.1 Financial Management Structure

3.1.1 Public Sector Agency Financial Management Team
      Structure


Direction

The CFAO must ensure that there is a structure for the financial management team with
clearly defined roles and responsibilities to adequately support sound financial
management.



Procedure

(a.)     Roles and responsibilities for positions within the financial management team
         structure must be defined and documented to ensure the most effective and
         efficient allocation of tasks and resources. Prerequisite skills, qualifications and
         experience for each position must also be defined and documented.

(b.)     Financial management is defined to encompass:

             Budgeting;

             Financial Reporting;

             Accounts receivable/payable;

             Procurement;

             Taxation;

             Asset Management;

             Financial systems;

             Accounting Policies;

             Cash Management;

             Project Management – financial aspects;

             Payroll; and

             Management reporting.




Department of Treasury and Finance                                                         35
Updated May 2012
3.1.2 Chief Finance and Accounting Officer (CFAO)


Direction

The Responsible Body must ensure financial management leadership is secured from a
suitably experienced and qualified Chief Finance and Accounting Officer (CFAO).



Procedure

(a.)    The prerequisite skills, qualifications and experience for the CFAO must be clearly
        defined and documented together with position description, role, duties, rights and
        responsibilities.

        see Guideline 1 below

(b.)    The CFAO must endorse financial reports submitted to senior management in any
        Public Sector Agency, including reports submitted to the Responsible Body, and
        peak boards and management groups.

        see Guideline 2 below



Guideline 1

The CFAO should hold at least tertiary level accounting qualifications and membership of
the Institute of Chartered Accountants in Australia (ICAA), CPA Australia, National Institute
of Accountants (NIA), or equivalent.



Guideline 2

The purpose of the CFAO review is to ensure that the financial information presented in the
reports is endorsed as to its completeness, reliability and accuracy.



3.1.3 Policies and Procedures


Direction

Public Sector Agencies must establish and maintain documented policies and procedures
to set out requirements for complete and accurate processing of authorised transactions.



Procedure

(a)    The Responsible Body must ensure there are formal, documented policies and
       procedures in relation to financial administration and management.



36                                                              Department of Treasury & Finance
                                                                              Updated May 2012
         see Guideline below

(b)      There must be effective and efficient communication of policies and procedures to all
         officers either manually or electronically.

(c.)     There must be quality assurance mechanisms in place for monitoring, review and
         assessment of compliance with policies and procedures.



Guideline
(i).     The policies and procedures for financial administration and management should
         incorporate, the following:

                Legislation under which the Public Sector Agency operates;

                Public Sector Agency financial management structure;

                Chart of accounts of the Public Sector Agency;

                Policy and procedure details for areas of financial management covered by
                 these Directions, including use of information technology related to financial
                 matters, where appropriate;

                Standard forms to be used in financial management;

                A list of exemptions obtained from the Minister for Finance and all relevant
                 supporting documentation;

                Accounting Standard Pronouncements of the Australian Accounting Standards
                 Board; and

                Conflicts of interest details.

(ii).        Policies should be ratified by the Responsible Body or other delegate approved by
             the Responsible Body. Procedures should be ratified by the CFAO.

(iii).       There should be sound control over policies and procedures to ensure only
             authorised versions are in use at any point in time.

(iv).        There should be a process for periodic review of financial management policies
             and procedures (at least every two years, or more frequently at the discretion of
             the Responsible Body). The review should be designed to continuously improve
             the policies and procedures and reflect changes in the business/operations,
             technologies and best practice trends in financial management.




3.1.4 Chart of Accounts


Direction

Public Sector Agencies must establish and maintain a chart of accounts to accurately
reflect transactions in the financial records for management decision-making purposes and
to ensure compliance with external reporting requirements.

Department of Treasury and Finance                                                           37
Updated May 2012
Procedure

(a)     The CFAO or an approved delegate is responsible for the development and
        maintenance of a chart of accounts.

        see Guideline below

(b)     There must be effective and efficient communication of the chart of accounts to all
        officers within the Public Sector Agency, either manually or electronically.

(c)     A Government Department must use any chart of accounts issued by the Minister for
        Finance as a basis for aligning its activities for the purposes of consistency in
        reporting.

(d)     There should be an explanatory note to each account within the chart of accounts
        that describes the nature and purpose of the account, as a means to delineate the
        boundary lines between capital, revenue and expense items and assist
        categorisation of transactions.



Guideline

The chart of accounts should be:

     Properly controlled (it is recommended that all changes be approved by the CFAO or
      their delegate);

     Maintained and updated in a timely manner reacting to the needs of the Public Sector
      Agency;

     Aligned with the objectives of the Public Sector Agency;

     Aligned with the consolidated reporting requirements of the Department of Treasury
      and Finance;

     Sufficiently detailed and logically structured to allow useful and timely management
      reporting and financial reporting consistent with legislative requirements;

     In the case of Government Departments provide for effective budgeting, reporting and
      monitoring of the output management principles and practices; and

     A relationship table between the chart of accounts and that issued by the Minister for
      Finance should be established and maintained.




3.1.5 Managing Outsourced Financial Services


Direction

Public Sector Agencies must ensure effective management of outsourced financial
functions to obtain the required levels of service and maintain compliance with the FMA,
the Financial Management Regulations 2004 and these Directions.




38                                                               Department of Treasury & Finance
                                                                               Updated May 2012
Procedure

(a.)    Prior to outsourcing financial functions either in full or part, the costs and benefits
        must be analysed and the outsourcing decision approved by the Responsible Body.

        see Guideline below

(b.)    The financial services to be provided under an outsourced arrangement must be
        able to be detailed in a contract, service level agreement or equivalent, together with
        performance indicators and measures.

(c.)    Performance against the contract, service level agreement or equivalent, must be
        regularly monitored and reviewed, including a review (at least annually) by the
        Accountable Officer, or delegate such as the CFAO. If the Accountable Officer is not
        the Responsible Body, the results of the review should be reported to the
        Responsible Body.

(d.)    Outsourced financial functions must be subject to internal and external audit
        scrutiny.



Guideline

(i).    Different aspects of the financial function can be outsourced. Examples of
        outsourced financial functions may include: actuarial services, investment
        consulting, debt collection and maintenance of the ledger or other financial systems.
        However, the Public Sector Agency remains responsible for ensuring that the third
        party provider is meeting the requirements of the FMA, these Directions and any
        other relevant legislation.

(ii).   Before outsourcing a cost-benefit analysis should be undertaken. The cost-benefit
        analysis should include.

           The costs and basis for estimating the cost;

           The benefits and basis for estimating the benefits;

           An assessment of planned non-financial benefits;

           Potential risks associated with outsourcing the function and how they will be
            mitigated; and

           A recommendation for proposed future action.




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40                                         Department of Treasury & Finance
                                                         Updated May 2012
3.2 Information Technology Systems

3.2.1 Information Technology Management


Direction

A Public Sector Agency must ensure that the direction, strategy and use of information
technology in the Public Sector Agency is consistent with and appropriate for its sound
financial management.



Procedure

(a.)     The Responsible Body must review the use of information technology for financial
         management on at least an annual basis.

         see Guideline below

(b.)     The Responsible Body must conduct or review (at least annually) an assessment of
         information technology risks and their impact on financial management.




Guideline

This review is in relation to technology used for financial management and should include,
but not be limited to, whether:

      There are the appropriate skills available within the Public Sector Agency, to support
       the information technology environment and whether obtaining external support may
       be necessary;

      The current level of reliance on information technology is still considered to be
       appropriate;

      There are appropriate controls over information technology that is currently being
       employed; and

      The impact of changes to financial applications and IT infrastructure has been
       adequately assessed and understood.




3.2.2 Information Technology Operations


Direction

The Responsible Body must strongly support information technology operations to support
financial management and make it as widely available as possible.



Department of Treasury and Finance                                                         41
Updated May 2012
Procedure

(a.)     At least annually, the Public Sector Agency must formally assess the impact of
         information technology that supports financial management not being available for
         an extended period. This should include review and testing of a formally
         documented disaster recovery plan and business continuity plan.

(b.)     The Public Sector Agency must ensure up-to-date backups are maintained for all
         financial management systems and data being used.

         see Guideline below

(c.)     A register of licences for financial management software must be maintained. In
         addition, regular audits or verification reviews of the register must be performed (at
         least annually).

(d.)     Error logs must be identified, reviewed and followed up regularly to monitor access
         to and transactions through financial management systems.

(e.)     Where financial systems are connected externally to the internet, controls must be in
         place to prevent these connections from undermining system security. Controls may
         include:

             Firewalls;

             Security logs; and

             Encryption.




Guideline

(i).      The policy for the frequency of backups of financial management information
          should be ratified by the Responsible Body (in accordance with Direction 3.1.3,
          Guideline (ii). Backups should be taken at appropriate intervals based on the
          volume of data input and criticality of information. As a guide, where financial
          transactions are processed daily, daily backups should be taken.

(ii).     The backups should be stored in an off-site, secure location and be periodically
          checked to ensure that the backups are being performed adequately (any backups
          stored onsite should be kept in a fireproof safe and checked periodically).

(iii).    The Public Sector Agency should ensure the backup cycle includes rotation and
          periodic replacement of storage media.

(iv).     Annual backups should be stored for the period required under the Public Records
          Act 1973, unless there is a requirement to store for a longer period.




42                                                                Department of Treasury & Finance
                                                                                Updated May 2012
3.2.3 Security


Direction

The financial management system must have levels of security to ensure that only
authorised people have access to transactions.



Procedure

On at least an annual basis, a formal assessment must be performed of whether financial
management information that is sensitive to the Public Sector Agency and stakeholders is
appropriately controlled and secured. The adequacy of the following controls must be
considered:

      Security policies;

      Password controls, for both applications and operating platforms;

      Segregation of incompatible duties and user access levels being commensurate with
       roles and responsibilities; and

      Restricted physical access to the computer room and other sensitive financial
       management technology assets.




3.2.4 Development


Direction

The CFAO, in consultation with appropriate technical input, must regularly review and
address the developments in financial management systems needed to ensure the most
appropriate technological support for financial management practices.



Procedure

(a.)     At least annually, a review of whether the use of spreadsheets, manual files or core
         financial processes would be more efficiently or effectively conducted or delivered
         through the use of a more formal application package or automated system must be
         undertaken.

(b.)     Public Sector Agencies must develop or adopt a formal information technology
         development methodology for development of financial management systems and
         technology.

         see Guideline 1 below




Department of Treasury and Finance                                                         43
Updated May 2012
(c.)     For all proposed financial management system developments there must be a
         business case that is approved by the Information Technology Steering Committee
         (or Responsible Body or Executive Team, where an Information Technology
         Steering Committee does not exist) and end users.

         see Guideline 2 below

(d.)     For all developments that proceed, there must be project management processes in
         place including: status reporting of the project to the project sponsor.

         see Guideline 3 below



Guidelines

Guideline 1

The methodology may be:

      Internally developed and applied across the Public Sector Agency’s development
       projects; or

      Be supplied by an external vendor as part of a specific project. For example, by a
       tender requirement that the supplier has a development methodology that can be
       applied to the project.



Guideline 2

The business case for the development of financial management systems should include
the approach to the development, proposed benefits and associated measures, budget,
key risks and actions to address risks.



Guideline 3

For large or complex projects, status reporting is expected through to a Project Steering
Committee that meets at least every two months, and more frequently as required.



3.2.5 Change Control


Direction

Changes made to financial management systems must be authorised and implemented in
a controlled manner to ensure the integrity of financial management data is maintained.

Procedure

Public Sector Agencies must have a change control and management process.




44                                                            Department of Treasury & Finance
                                                                            Updated May 2012
Guideline

The process should include:

   A formal process for requests for program changes;

   Formal user signoff that the changes have been made in accordance with the user
    requirements;

   Signoff that appropriate testing has been performed, including consideration of unit,
    systems, regression, user and other forms of testing; and

   Migration to the production environment is appropriately controlled.




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46                                    Department of Treasury & Finance
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3.3 Education and Training

Direction

Public Sector Agencies must ensure financial management staff are appropriately
educated and trained to fulfil their financial management responsibilities.



Procedure

Training and education needs for the financial management team must be reviewed, at
least annually, by the CFAO or their delegate and a program must be developed to
address these needs.

see Guideline below



Guideline

(i).     The assessment of training and education needs should be documented and
         communicated to the CFAO and should form the basis for allocation of a specific
         education and training budget for the financial management team.

(ii).    Implementation of a program for addressing training and education needs should be
         monitored on an annual basis and reported to the CFAO or their delegate.

(iii).   Where appropriate a Public Sector Agency should incorporate the following
         elements in its education and training model:

            A performance evaluation system linked to the requirements for financial
             management;

            A training needs analysis, up front and periodically, as required;

            Facilitation of on the job/self paced learning; and

            A formal training evaluation process.




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48                                    Department of Treasury & Finance
                                                    Updated May 2012
3.4 Policies and Procedures

3.4.1 Revenue


Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over revenue transaction processing and management to ensure that revenue
is completely and accurately identified, recorded and collected.



Procedure

(a.)     Policy and procedures for recognising and recording revenue and corresponding
         receipts must be developed and implemented.

         see Guideline 1 below

(b.)     Responsibility for revenue and related transactions must be delegated to
         appropriate officers in accordance with Direction 2.4.

         see Guideline 2 below

(c.)     The levels of charges for goods or services provided must be documented and
         approved by the CFAO, and must be reviewed at least annually by a delegate of
         the CFAO and a recommendation made to the Responsible Body as to how they
         should be updated.

         see Guideline 3 below

(d.)     A register of outstanding receivables balances that ages the outstanding balances
         and is used by management to monitor and follow up on overdue debtors must be
         maintained. An analysis of aged debtors must be reported to the CFAO, or a
         delegate of the CFAO, on a monthly basis.

         see Guideline 4 below

(e.)     A Public Sector Agency must regularly assess revenue that is to be foregone,
         waived or written off. Revenue foregone, waived or written off must be approved
         by the CFAO or other officer within the approved financial management
         delegations.

         see Guideline 5 below

(f.)     For Government Departments, appropriation revenue received for the provision of
         outputs may only be recognised as revenue following certification by the
         Treasurer.




Department of Treasury and Finance                                                      49
Updated May 2012
Guidelines

Guideline 1

The policies and procedures for recognising and recording revenue should cover:

    Identification and recording of revenue accrued to the Public Sector Agency,
     irrespective of any subsequent cash inflow;

    How charges for goods or services are determined and approved, including
     consideration of legal and taxation requirements such as for GST purposes;

    The timing and process for billing to ensure customers are billed as soon as
     practicable after goods and services are provided;

    A standard template for billing customers that includes appropriate internal control
     features;

    Credit policies and negotiation of payment terms;

    Recording of revenue and corresponding debtors in the financial records;

    Processing of receipts;

    Requirements for follow up of outstanding debtors;

    The audit trail that substantiates the receipt of individual revenue transactions;

    Periodic and regular review of credit worthiness of customers and collectability of
     receivables; and

    Treatment of bad and doubtful debts.



Guideline 2

With respect to the delegation of responsibility for revenue, there should be segregation of
duties between roles and responsibilities for initiating debtors/revenue, cash
collection/banking of money, and processing credit notes, waivers and write-offs to the
greatest extent practicable.

Guideline 3

Public Sector Agencies should refer to BFMG 21 Setting Fees and Charges Imposed by
Departments and Budget Sector Agencies. This can be located on the Budget and
Financial Management website (http://bfm.dtf.vic.gov.au). Only agencies that are
connected to the Victorian Government common virtual private network can access this
site. Please contact your portfolio coordinator directly if you have problems with access.


Guideline 4

Collection of revenue should be maximised through application of appropriate collection
and follow-up procedures. These procedures should identify:

    The priorities for outstanding debtor follow up (to ensure the cost of follow up does not
     significantly overweigh the benefit of collecting the debt);

50                                                                 Department of Treasury & Finance
                                                                                 Updated May 2012
      Steps to take for debts that are outstanding for specified periods of time eg: verbal
       follow up and/or letters requesting payment and the point at which the debt should be
       referred to legal action or to an outsourced debt collection specialist, if appropriate;
       and

      Requirements for documentation of the actions taken.



Guideline 5

There should be an adequate audit trail to evidence the approval of revenue foregone,
waived or written off.




3.4.2 Cash Handling


Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over cash handling and banking so that cash from all sources is completely and
accurately identified, banked and recorded in the financial records.



Procedure
(a.)     Policy and procedures for cash collection and handling must be developed and
         implemented.

         see Guideline 1 below

(b.)     Responsibility for cash handling must be delegated to appropriate officers in
         accordance with Direction 2.4.

         see Guideline 2 below

(c.)     All sources, locations and methods of cash collection must be identified and
         approved by the CFAO and articulated in the policies and procedures.




Department of Treasury and Finance                                                           51
Updated May 2012
Guidelines

Guideline 1

The policies and procedures for cash collection and handling should cover the following:

    Complete, accurate, timely and secure receipting of incoming moneys such as postal
     remittances, cash taken at approved cash collection points, money taken by credit
     card, or other electronic media;

    Use of sequentially numbered receipts;

    Timeliness, process and frequency of banking - as a guide banking should be
     performed daily unless the total collections has not exceeded $500, in which case
     banking should always be performed at intervals of no more than 5 working days;

    Complete, accurate and secure recording of incoming moneys in the accounting and
     financial records;

    Arrangements for secure storage of incoming moneys and moneys held that have not
     been banked;

    The circumstances, if any, under which an incoming cheque can be cashed and/or
     change given;

    Process, audit trail and approval requirements for cancelling receipts;

    Treatment of personal cheques that may be received and should be kept separate
     from public monies;

    Cash reconciliation requirements;

    Nature, extent and procedures for control over petty cash and other cash floats;

    Handover of cash from one officer to another;

    Daily procedures for closing off any cash registers;

    Audit trail requirements over cash transactions that ensures it is possible to follow up
     dishonoured transactions;

    Securing of documentation; and

    The review of adequacy of insurance.



Guideline 2

Delegation of the responsibility for cash handling must be performed in accordance with
Direction 2.4. Segregation of duties should be maintained at all times between cash
handling and other conflicting roles and responsibilities including cash, bank
reconciliations, banking, and invoicing and credit note processing.




52                                                               Department of Treasury & Finance
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3.4.3 Bank Accounts


Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over the establishment and management of bank accounts to ensure balances
are accurately reflected in the financial records and bank accounts are operated efficiently
and effectively.



Procedure

(a.)     Bank accounts must only be opened with the express written approval of the
         Responsible Body or its delegate.

(b.)     A Public Sector Agency must have as few banking institutions and bank accounts
         as practicable. The number of bank accounts and institutions used for banking
         should be reviewed at least annually by the CFAO.

(c.)     All bank accounts must be reconciled, at least on a monthly basis.

(d.)     Bank accounts are only to be closed with the approval of the Responsible Body or
         its delegate.

(e.)     All collections must be paid into the appropriate bank accounts completely,
         accurately and in a timely manner.

         see Guideline below

(f.)     A register of bank accounts and facilities should be maintained.



Requirements for Government Departments

(g.)     All new bank accounts opened and all bank account closures by Government
         Departments must be reported to the Department of Treasury and Finance.




Guideline

Section 15 of the FMA provides for the opening and maintaining by a Government
Department of bank accounts with a bank or banks.




3.4.4 Cash Flow Forecasting
Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over cash flow forecasting and cash flow management to ensure cash deficits
and surpluses can be effectively managed.

Department of Treasury and Finance                                                       53
Updated May 2012
Procedure

(a.)      Cash forecasting must be performed to ensure sufficient cash is available to
          operate the business of the Public Sector Agency, to maximise investment
          opportunities and minimise borrowing costs.

           see Guideline below

(b.)      Cash forecasts must be regularly compared (at least monthly) against actual cash
          flows, updated as required and reported to the CFAO.

(c.)      Government Departments and other Public Sector Agencies who are required to
          bank into the Public Account must:

              Prepare and provide the Department of Treasury and Finance with long-term
               cash flow forecasts on a 12 month rolling basis;

              Prepare and provide, on a monthly basis to the Department of Treasury and
               Finance, detailed daily estimates of cash flows for the next 2 forecast months;
               and

              Prepare and provide the Department of Treasury and Finance with daily
               advice on Public Account receipts and payments.



Guideline

Three levels of rolling forecasts of cash flows are recommended for Public Sector
Agencies:

      Long-term strategic forecasts, based on annual budget estimates, and used to plan for
       significant cash flows and any contingencies;

      Short-term tactical forecasts, usually prepared monthly to provide detailed estimates of
       the cash flows expected; and

      Weekly operational forecasts, where appropriate, which allow Public Sector Agencies’
       immediate cash flow requirements to be met.




3.4.5 Procurement


Background

Section 54L of the FMA empowers the Victorian Government Purchasing Board (VGPB) to
make supply policies. These policies are to be consistent with these Directions. All
Accountable Officers of Government Departments and other staff of Government
Departments must comply with supply policies.       This means that the following
organisations must comply with the supply policies:

      All Government Departments;

      Office of the Chief Commissioner of Police;


54                                                                 Department of Treasury & Finance
                                                                                 Updated May 2012
     Auditor-General’s Office;

     Office of Public Prosecutions;

     Victorian Electoral Commission;

     Office of the Ombudsman;

     Office of the Commissioner for Public Employment;

     Essential Services Commission;

     Office of the Legal Ombudsman; and

     Office of the Victorian Privacy Commissioner.



Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over procurement activities to ensure procurement of goods or services is
authorised in accordance with business needs and within a documented framework of
procurement policies and procedures.



Procedure

(a)       Relevant mandatory elements in relation to procurement are included at
          Directions 2.1 Financial Code of Practice, 3.1.5 Managing Outsourced
          Financial Service and 3.4.6 Expenditure

(b)       A Public Sector Agency must ensure that its framework of procurement policies
          and procedures are based on the following principles:

             Value for Money;

             Open and Fair Competition;

             Accountability;

             Risk Management; and

             Probity and Transparency.

(c)       In addition, a Public Sector Agency must comply with the Victorian Industry
          Participation Policy issued by the Victorian Government.



Guideline

For more information refer to the Victorian Government Purchasing Board website at
www.vgpb.vic.gov.au or to access the Guide for the Acceptance of Performance Bonds
by public sector agencies refer to the Department of Treasury and Finance website at
www.dtf.vic.gov.au.



Department of Treasury and Finance                                                   55
Updated May 2012
3.4.6 Expenditure


Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over expenditure transaction processing and management to ensure that
disbursements (including but not limited to grants, capital expenditure, salaries and wages,
and other recurrent expenditure) are appropriately authorised and incurred in accordance
with business needs, and captured in the financial records.



Procedure

(a.)    Policy and procedures for the timely and accurate recording of committed
        expenditure must be developed and implemented.

        see Guideline 1 below

(b.)    Officers with appropriate financial delegations are responsible for approving
        expenditure and related transactions.

        see Guideline 2 below

(c.)    A system to pay all debts as and when they are due and payable and to ensure
        early payment discounts are fully utilised where appropriate must be implemented.

(d.)    Payments must be made in a secure and efficient manner that takes advantage of
        technologies.

(e.)    Policies and procedures must specifically address and be established in the
        following expenditure types:

           Capital expenditure;

           Travel;

           Hospitality;

           Personal expense reimbursement;

           Gifts;

           Employee advances;

           Petty cash;

           Purchasing Card Rules for Use and Administration issued by the Department
            of Treasury and Finance.


(f)     Refer to Direction 4.5.3




56                                                              Department of Treasury & Finance
                                                                              Updated May 2012
          *                     *                *                   *                  *


(g)       All Public Sector Agencies must report to the Minister for Finance, within one
          month of becoming aware of, any material and substantial breach of policies and
          procedures relating to the expenditure transaction processing and management
          and the management action taken by the Public Sector Agency in response to this
          breach.



Guidelines

Guideline 1

The policy and procedures for timely and accurate recording of expenditure, should cover
requirements in Direction 3.4.6 in addition to:

     Identification and recording of expenditures incurred irrespective of any subsequent
      cash flow;

     Expenditure only to be incurred when duly approved, within available budgets and for
      authorised purposes;

     Systems to ensure all disbursements and payments are approved by an appropriately
      authorised officer;

     Procedures to ensure that disbursements and payments are not duplicated;

     Payments only being made on original tax invoices or in accordance with ATO tax
      rulings in this area, with instances of non compliance monitored by the CFAO;

     An audit trail which substantiates payments and demonstrates that internal control
      systems and procedures have been adhered to;

     A mechanism for periodic review of all major suppliers for performance and
      competitiveness should be established; and

     Mechanisms to ensure all legal and taxation requirements, such as for GST and FBT
      are satisfied.



Guideline 2

With respect to the approval of expenditure, where practical, appropriate segregation of
duties within the procurement and payment processes would typically incorporate
segregation of the following:

     Initiating expenditure;

     Approving expenditure;

     Receipt of goods and services;

Department of Treasury and Finance                                                      57
Updated May 2012
      Invoice verification and processing;

      Disbursement and payments processing; and

      Maintenance of vendor records.




3.4.7 Employee Costs


Direction

Public Sector Agencies must implement and maintain an effective internal control
framework over financial transaction processing for employee expenses and for employee
expense management to ensure that salaries, wages and other employee costs (including
full-time, part-time and casual employees) are authorised and paid accurately, efficiently,
and in a timely and secure manner.



Procedure

(a.)       A system of internal control must be established and documented in relation to the
           capture, approval, processing and payment of employee expenses such as salary
           and wages and associated leave expenses.

           see Guideline 1 below

(b.)       There must be independent review and approval of salary and wage data
           (including all masterfile changes) prior to processing salary and wage payments.

(c.)       There must be security over payroll data including personnel files, payroll reports
           and other sensitive employee information.

(d.)       Payments must be made in a secure, timely, and accurate manner.

           see Guideline 2 below

(e.)       Leave entitlement balances and corresponding liabilities must be recorded and
           monitored with a view to ensuring they are minimised at all times to avoid any
           significant impact upon cash flow.



Guidelines

Guideline 1

With respect to the establishment of a system of internal control, there should be
segregation of duties between roles and responsibilities for the:

      Capture and authorisation of salary and wage information;

      Processing, including data entry and maintenance, of salary and wage information;

      Approval of salary and wage payments and adjustments;



58                                                                 Department of Treasury & Finance
                                                                                 Updated May 2012
      Processing of the salary and wage payments; and

      Maintenance of an audit trail which substantiates salary and wage payments and
       demonstrates that internal control systems and procedures have been adhered to.


Guideline 2

To ensure that payments are made in a secure, timely and accurate manner, where
possible a Public Sector Agency should take advantage of appropriate technology in
relation to electronic payments of employee expenses at all times.



3.4.8 Commission on Employee Payroll Deductions

Direction
Public Sector Agencies must recover the costs associated with voluntary payroll
deductions from gross pay by charging the payee a commission on amounts deducted.



Procedure
(a.)      Commission must not be charged on taxation, superannuation or other mandatory
          deductions.

(b.)      Any commission which is collected must be brought to account as revenue.

(c.)      In the case of health insurance:

             DTF determines the rate of commission payable on contributions other than
              contributions to Medibank. The commission payable is indexed annually to the
              Melbourne Consumer Price Index;

              see Guideline below

             Medibank Private determines the commission payable on contributions to
              Medibank; and

             Each Public Sector Agency must arrange with the health insurance funds
              (including Medibank) to collect the commission annually.

(d.)      In the case of any other deductions, the Accountable Officer must determine the
          rate of commission.

Guideline

As at 1 July 2011, the current rate of commission on health insurance contributions, other
than contributions to Medibank is $10.40 per contributor, per annum.




Department of Treasury and Finance                                                      59
Updated May 2012
3.4.9 Physical and Intangible Assets


Background
Section 44B(1) of the FMA requires Public Sector Agencies to maintain a register of assets
held or managed by it. Section 44B(2) provides that the register is to be in the form, and
contain the information determined by the Minister for Finance after consultation with the
Victorian Managed Insurance Authority (VMIA).



Direction

Public Sector Agencies must implement and maintain an effective internal control
framework for asset management to ensure that assets are identified, recorded accurately
and accounted for in accordance with Australian Accounting Standards.



Procedure

(a.)   Policy and procedures for asset identification, recording and management must be
       established and maintained.

        see Guideline 1 below

(b.)   Depreciation and amortisation must be calculated in accordance with relevant
       accounting standards and taxation requirements.

        see Guideline 2 below

(c.)   Assets must be kept in secure custody and used for authorised purposes only.

(d.)   Proper authority in the form of financial delegations or specific authorisation must
       be obtained before acquiring, transferring or disposing of an asset.

(e.)   Proper policies and procedures must be documented for the revaluation of assets
       including appropriate approvals for changes to asset values in accordance with
       financial delegations.

(f.)   Records and details must be maintained in relation to contingent assets as
       required for Public Sector Agency needs, and to satisfy accounting standards and
       disclosure requirements.

(g.)   Records and details for intangible assets must be sufficient to ensure compliance
       with accounting standards and disclosure requirements, in addition to any
       operational needs of the business.




60                                                             Department of Treasury & Finance
                                                                             Updated May 2012
Guidelines

Guideline 1

The policies and procedures for asset identification, recording and management should
incorporate the following:

      Recognition of assets upon receipt or commissioning;

      Verification of the physical existence, location and condition of assets and inventories
       on a regular basis and requirements for the asset register to be reconciled against the
       records of the Public Sector Agency. This should be conducted by someone other
       than to whom the asset has been assigned;

      Complete and accurate records of inspections made with respect to maintenance
       needs and actions taken should be maintained; and

      The creation or purchase of an asset requires standard expenditure procedures to be
       followed. Financial delegations of authority should specify those officers able to
       authorise the transfer or disposal of an asset.



Guideline 2

      The Public Sector Agency should have its depreciation policies and rates clearly
       articulated in the relevant internal documentation, such as an accounting policy
       document.

      The allocation of depreciation expense to outputs should be recorded.



3.4.10 Liabilities


Direction

Public Sector Agencies must implement and maintain an effective internal control
framework for the incurrence and management of liabilities to ensure they are incurred and
managed in line with proper procedures and the Public Sector Agency’s objectives.



Procedure

(a.)      Policy and procedures must be developed to ensure that liabilities are incurred for
          authorised purposes only and that proper authority is obtained prior to incurring
          liabilities.

           see Guideline below

(b.)      Officers with appropriate authorisation or financial delegations are responsible for
          incurring liabilities




Department of Treasury and Finance                                                           61
Updated May 2012
(c.)      Records and details must be maintained in relation to contingent liabilities and
          contingent assets as required for Public Sector Agency needs and to satisfy
          accounting standards and disclosure requirements.



Guideline

The policies and procedures for the management of liabilities should cover:

      Requirements for complete and accurate recording of liabilities as and when they are
       incurred;

      Liabilities to be accounted for in accordance with the Public Sector Agency’s approved
       accounting policies and applicable accounting standards and other requirements; and

      Mechanisms to ensure liabilities are settled when they become due and payable.




3.4.11 Reconciliations


Direction

Public Sector Agencies must implement and maintain procedures to ensure that
reconciliations are completed and reviewed in a timely manner to ensure the accuracy of
the financial records.



Procedure

Procedures in relation to the completion, review and monitoring of reconciliations must be
implemented.




Guideline

(i).       These should include, where appropriate:

                Responsibility for reconciliation completion;

                Responsibility for reconciliation review;

                Frequency of reconciliations completion;

                Prioritisation of key reconciliations;

                Completion deadlines;

                Requirements for reconciling items to be followed up and cleared;

                Format of reconciliations; and


62                                                               Department of Treasury & Finance
                                                                               Updated May 2012
                  Appropriate supporting documentation to be attached.

(ii).       There should be separation of duties between responsibilities for the preparation
            and review of reconciliations.



3.4.12 Administration of Discretionary Financial Benefits
Background

A discretionary financial benefit is a financial benefit given to a person or body for a
specified purpose directed at achieving outcomes sought by government policy. Examples
of discretionary financial benefits include grants, sponsorships and donations.

A discretionary financial benefit does not include a financial benefit received by a person or
body as consideration for goods or services provided by them under an agreement entered
into on commercial terms or a transfer of funds to a government entity for the purpose of
funding non contestable output delivery.



Direction

When administering discretionary financial benefits, Public Sector Agencies must
implement and maintain effective financial management controls to ensure that a
transparent process delivers measurable efficient and effective financial management and
accountability outcomes sought by Government policy.



Procedure

Policy and procedures for the financial management of discretionary financial benefit
programs must be developed and implemented, where applicable. Any policies and
procedures must be consistent with the FMA and the Directions.



Guidelines

Guideline 1

Policies and procedures for the financial management of discretionary financial benefits
should be developed within the Public Sector Agency’s broader financial management
frameworks. They should include:

       Procedures for determining the financial viability of financial benefit recipients to deliver
        the desired outcome;

       Delegations for the approval of financial benefit recipients and for payments to such
        recipients;

       Procedures for the authorisation of payments made to financial benefit recipients;

       Separation of duties between the appraiser of applications, approval of offers and
        making financial benefit payments;


Department of Treasury and Finance                                                                 63
Updated May 2012
    Requirement to establish financial reporting requirements of financial benefit recipients
     in the terms and conditions of a funding agreement;

    Mechanisms and responsibilities for monitoring the use of, and acquitting, financial
     benefits;

    Procedures for the recovery of financial benefits in a timely and effective manner when
     and if necessary in circumstances where there is an ineffective delivery of the desired
     outcome; and

    Identification of the financial management information technology or other system
     requirements to ensure effective financial management and accountability for financial
     benefits.



Guideline 2

There are a number of other elements that need to be considered in relation to the overall
management and administration of discretionary financial benefits, these include the
following:

    Establishing the need for a financial benefit program:

     o    Each financial benefit program will require a clearly defined objective and a
          business case which analyses the need for the program, alternate effective
          means of achieving the program objective and explores alternative sources of
          funding in terms of a loan or Commonwealth or private funding etc.

    Establishing performance measures:

     o    To determine the outcome and effectiveness of a financial benefit program, it is
          essential to design relevant and meaningful performance measures and
          indicators at the commencement of the program.

    Financial Risk Management:

     o    Financial benefit program management resource limitations and other financial
          risks associated with such programs should be identified and mitigated through a
          documented financial risk management strategy at the planning stage.

     o    At the operational stage of a program, a sound performance information system
          that focuses on continuously identifying and treating emerging financial risks
          should be available as a management tool.

    Ensuring Value for Money:

     o    The design of a value for money financial benefit program needs to include the
          best mix of funding sources, the identification of efficient administrative support
          costs, (where appropriate) the use of on-line financial benefit application,
          appraisal and management systems (to streamline the application and selection
          process, reduce administrative costs and increase the transparency of
          discretionary financial benefit administration) and strategies to manage
          relationships and cooperatively streamline and reduce duplication of effort.

    Establishing Selection Criteria for Discretionary Financial Benefits:




64                                                                Department of Treasury & Finance
                                                                                Updated May 2012
    o      To achieve transparency and effective selection of financial benefit recipients the
           design of a financial benefit program needs to include evidence based selection
           criteria.

   Management of Effective Financial Benefit Funding Agreements:

    o      The design of funding agreements needs to include clearly defined terms and
           conditions to facilitate effective outcomes and minimise ongoing monitoring effort.
           The management of agreements needs to include procedures for monitoring
           payments, recipient organisations and progress of outcomes as well as
           arrangements for financial accountability through effective financial benefit
           acquittal.

   Evaluation of Financial Benefit Programs:

    o      Procedures need to test the adequacy of performance information and evidence
           of the quality, efficiency and effectiveness of a program, as well as, whether the
           program achieved the outcome it was designed to achieve.

   Reporting:

    o      In the absence of tailored public performance reports, the accountability to report
           to the Parliament and the public is best achieved through disclosure in budget
           papers and/or Departmental annual reports.




3.4.13 Information Collection and Management


Background

The objectives of this Direction are to ensure that the collection and storage of information
is appropriately managed; and to provide assurance that reliable and accurate information
is available for the purposes of risk management and financial and operational reporting.

The integrity of information maintained by an organisation can be enhanced by the
following factors:

   robust data collection processes, collation procedures and methods;

   consistent interpretation, classification and storage of information; and

   adequate risk identification, assessment and mitigation strategies to ensure data
    quality.

Accordingly, Public Sector Agencies must take reasonable steps to ensure the accuracy
and completeness of information collected and stored, which supports reporting by
establishing appropriate policies, standards and controls to direct governance and risk
management activities.

Direction

Public Sector Agencies must take reasonable steps to ensure that data is accurate and
adequate when it is collected, and that its accuracy is maintained during subsequent use
and reporting. The standard for accuracy and adequacy is to be determined by reference


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to what is expected for the purposes of effective risk management and financial and
operational reporting.



Procedure

(a.)       Appropriate policies and procedures for information collection, storage and
           dissemination must be developed, implemented and maintained, reflecting regular
           risk assessments related to key agency sets of data.

(b.)       Responsibility for the integrity of significant sets of data must be delegated to
           appropriate officers by the Accountable Officer.

(c.)       Public Sector Agencies must on a regular basis conduct a review of their
           obligations under this Direction.




Guideline

This Direction requires that Public Sector Agencies take necessary steps to ensure a
prudent approach to information management, and that a sufficient level of attention be
given to associated risks.

Public Sector Agencies should investigate any errors or deficiencies upon discovery. The
outcomes of the investigation, along with any corrections made, should be clearly
documented to reduce the possibility of similar occurrences.

Public Sector Agencies should consider the disclosure of any factors that may compromise
data accuracy at the time of publishing the information. The disclosure could provide
information regarding:

      the source of the information;

      the manner in which it has been stored and processed; and

      any known vulnerabilities inherent in the information, impacting on its reliability.

In complying with this Direction, relevant Public Sector Agencies should refer to the
requirements of the Victorian Government Risk Management Framework as espoused in
Direction 4.5.5 Risk Management Compliance.

The use of information technology (IT) for data collection, processing and storage presents
a range of security and control considerations that are specific to an IT environment. In
complying with this Direction, relevant Public Sector Agencies should also refer to the
Whole of Victorian Government ICT Policy on Information Security Management issued by
the Government Services Group of the Department of Treasury and Finance, and Direction
3.2 Information Technology Systems.



Additional guidance on the creation, maintenance, destruction, transfer and storage of
information can be found on the Public Record Office Victoria website:
www.prov.vic.gov.au. This guidance is consistent with public sector record management
obligations under the Public Records Act 1973.



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Furthermore, Public Sector Agencies should also consider their statutory obligations under
the Information Privacy Act 2000 and any other relevant legislation, in assessing
information management risk. Guidance on the application of the Information Privacy Act
can be found on the Victorian Privacy Commissioner’s website: www.privacy.vic.gov.au.




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4 Financial Management Reporting

Financial management reporting is designed to provide analysis and information that
supports a Public Sector Agency’s decision making, the management of its finances and
the measurement and management of its performance. It should be part of a suite of
management reports that help focus the Public Sector Agency on meeting its strategic and
operational goals and objectives. It should also be part of the mechanism by which
compliance with external reporting requirements is achieved in accordance with the
requirements of the FMA.

The Directions for financial management reporting set standards for Public Sector
Agencies to ensure financial management reporting that will assist the Public Sector
Agency in measuring and managing performance and ensuring consistency with applicable
statutory reporting obligations.




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4.1 Internal Financial Management Reporting

Direction

Public Sector Agencies must implement and maintain timely, accurate, appropriate and
effective reporting on financial matters for use in management decision making and to
support broader operational management reports.



Procedure

  (a.)   The requirements of the Public Sector Agency for financial management
         information must be identified and used as a basis for the design, preparation and
         distribution of internal financial management reports.

         see Guideline 1 below

  (b.)   Financial management reports must be tabled and discussed by the Responsible
         Body or at another recognised senior forum as determined by the Responsible
         Body, on a timely basis to ensure financial information is adequately monitored
         and acted on.

         see Guideline 2 below

  (c.)   Prior to release, internal financial management reports must be reviewed by the
         CFAO, or delegate for internal financial management reports that are not material.

  (d.)   The financial systems used by the Public Sector Agency must support internal
         financial management reporting to the level of detail and within the timeframes
         required.

         see Guideline 3 below



Guidelines

Guideline 1

(i).     Internal financial management reports of a Public Sector Agency should be
         prepared monthly, on an accruals accounting basis or modified accruals method,
         and cover:

                  Income Statement (profit and loss, income and expenditure);

                  Balance sheet;

                  Statement of recognised income and expense;

                  Cash flow; and

                  Public Sector Agency financial key performance indicators (KPIs)
                   (including, in the case of Government Departments, performance
                   measures for objectives and outputs as published in the Budget Papers).

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(ii).    Reports should include variance analysis of budget to actual including discussion
         on reasons for variations where appropriate and any action taken to address the
         variations. Reporting should include monthly, year to date (YTD), prior year
         comparatives and current forecast data where appropriate.

(iii).   The reporting format should remain consistent from period to period. Changes
         made should reflect changes in the business, improvements in the presentation or
         changes based on feedback obtained from end users.

(iv).    Reporting should be aligned with the objectives and needs of the Public Sector
         Agency in terms of the nature and extent of reporting, level of detail and frequency.

(v).     Feedback on internal reporting should be sought and obtained from end users on a
         regular basis to ensure reporting remains relevant.



Guideline 2

(i).     Appropriate financial management reports (and/or summary reports) should be
         presented and discussed at various levels within the Public Sector Agency
         including the executive team and business management. There should be
         evidence that this has occurred.

(ii).    To ensure reporting is timely and appropriate, the Public Sector Agency should
         develop a monthly reporting timetable that allows sufficient time for report
         preparation, review and distribution for all financial management reports.

(iii).   Quarterly reports to the Expenditure Review Committee of Cabinet (ERC) should
         be in accordance with the deadlines set by the Department of Treasury and
         Finance.



Guideline 3

An adequate audit trail should be maintained in the production of financial management
reports for the changes made when compared to the underlying financial systems. Where
necessary, the Public Sector Agency’s chart of accounts, or equivalent, should be
appropriate to cater for this, whilst also satisfying external reporting requirements.




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4.2 Reporting Requirements in terms of Part 7
of the FMA
Background

The annual report is the principal medium through which Public Sector Agencies discharge
their accountability to the Parliament, Government and the people of Victoria. The annual
report should assist these users in making decisions about the utilisation of resources in
the relevant entities. Annual reports therefore should provide both general and financial
information about the operations and performance of Public Sector Agencies, together with
assessments of results and financial position. The FMA requires that the annual report of
a relevant Public Sector Agency comprise (a) a Report of Operations and (b) Financial
Statements.



Direction

The Public Sector Agency must develop procedures to ensure timely and accurate
preparation of all reports required under Part 7 of the FMA.



Procedure

Financial Statements Required Under Part 7 of the FMA

(a.)     The financial statements must be prepared in accordance with:

            Australian accounting standards (AAS and AASB standards) and other
             mandatory professional reporting requirements (including Urgent Issues Group
             Consensus Views);

            Financial Reporting Directions; and

            Business Rules.

(b.)     The financial statements are to comprise the following:

            Income Statement;

            Balance Sheet;

            Statement of recognised income and expense; and

            Cash Flows Statement; and

            Notes to the financial statements.

(c.)     The financial statements must where applicable be signed and dated by the
         Accountable Officer, CFAO and a member of the Responsible Body, stating
         whether, in their opinion:

             The financial statements present fairly the financial transactions during the
              reporting period and the financial position at the end of the period;



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          The financial statements are prepared in accordance with this direction and
           applicable Financial Reporting Directions; and

          The financial statements comply with applicable Australian accounting
           standards (AAS and AASB standards) and other mandatory professional
           reporting requirements (including Urgent Issues Group Consensus Views).

(d.)   The financial statements must be expressed to the nearest dollar except where the
       total assets, or revenue, or expenses of the Public Sector Agency are greater than:

          $10,000,000, when the amounts shown in the financial statements may be
           expressed by reference to the nearest $1,000; or

          $1,000,000,000, when the amounts shown in the financial statements may be
           expressed by reference to the nearest $100,000.

(e.)   The financial statements must be reviewed and recommended by the Audit
       Committee or Responsible Body prior to finalisation and submission.

(f.)   The financial statements of Government Departments must present fairly and in
       accordance with the requirements contained within the Model Financial Report for
       Victorian Government Departments.



Report of Operations Required Under Part 7 of the FMA

(g.)   The Report of Operations should include qualitative and quantitative information on
       the operations of the Public Sector Agency and should be prepared on a basis
       consistent with the financial statements prepared by the Public Sector Agency
       pursuant to the FMA. This report should provide users with general information
       about the entity and its activities, operational highlights for the reporting period,
       future initiatives and other relevant information not included in the financial
       statements.

(h.)   The Report of Operations must be prepared in accordance with the requirements
       of the Financial Reporting Directions.

(i.)   The Report of Operations for Government Departments must be presented in
       accordance with the guidelines contained within the Model Financial Report for
       Victorian Government Departments.

(j.)   The Report of Operations must be signed and dated by the Accountable Officer in
       the case of a Government Department or, in the case of any other Public Sector
       Agency, a member of the Responsible Body.

(k.)   A Government Department must include a comparison of the output targets
       specified in the State Budget with actual performance against those targets.



Comparison with Actual Results

(l.)   Government Departments must include in their annual report, but not forming part
       of the audited financial report, a comparison between their portfolio financial
       statements published in Budget Paper No. 4 and actual results for the portfolio for
       the corresponding financial year.



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(m.)     The comparison between portfolio budget and actual figures referred to in (l) above
         must be presented as a set of financial statements in the same format and
         consolidation basis as those for the portfolio set out in Budget Paper No. 4 for the
         financial year. These financial statements are to be referred to as “Budget
         Portfolio Outcomes”.



Lodgement of Annual Reports

(n.)     In relation to a financial year each Public Sector Agency must provide a copy of its
         financial statements and report of operations either directly or via the portfolio
         Department, in the form of its annual report, to:

         Deputy Secretary

         Budget and Financial Management Division

         Department of Treasury and Finance

         1 Treasury Place

         East Melbourne Victoria 3002



Consolidated Financial Report for the State

(o.)     Financial information for the purposes of meeting the State’s Consolidated
         Financial Reporting requirements in section 24 and 25 of the FMA must be
         forwarded to the Department of Treasury and Finance in the format and by the
         date determined by the Deputy Secretary, Budget and Financial Management
         Division.



Guideline

The Model Financial Report can be located on the Department of Treasury and Finance
website (http://dtf.vic.gov.au).




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4.3 Other External Reporting

Direction

A Public Sector Agency must develop procedures to ensure that it meets all other external
reporting requirements in a timely and accurate manner. The requirements include those
contained in the Strategic Management Framework (SMF), as appropriate, and as issued
from time to time by the Department of Treasury and Finance.



Procedure

(a.)     Public Sector Agencies must identify all of their external reporting requirements.

(b.)     External financial reports must be delivered completely, accurately and in a timely
         manner.

(c.)     Prior to release, external financial reports must be reviewed by the CFAO or their
         delegate.


(d.) and (da)      Refer to Direction 4.5.4


         *                      *                  *                    *                     *




Guideline



The Strategic Management Framework can be located on the Department of Treasury and
Finance website (http://dtf.vic.gov.au). Only agencies that are connected to the Victorian
Government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.




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4.4 Financial Performance Management and
Evaluation

Direction

Public Sector Agencies must develop appropriate financial management performance
indicators and monitor performance against these to identify key statistics and trends for
use in management decision-making.



Procedure

(a.)     Financial key performance indicators (KPIs) must be developed by the
         Responsible Body working with management, including the CFAO and the
         Accountable Officer.

(b.)     The financial KPIs must be designed to measure and monitor financial
         management performance of the Public Sector Agency.

(c.)     Performance against financial KPIs must be measured, monitored and reported on
         a regular basis (at least quarterly, unless the financial KPI is an annual measure)
         to the Responsible Body.

(d.)     The Responsible Body must ensure that procedures are implemented to monitor
         financial KPIs.



Requirements for Government Departments

(e.)     Government Departments must:

             Set performance indicators for its Departmental objectives in accordance with
              the business rules contained in Budget and Financial Management Guidance
              BFMG-08 Objectives Specification, Performance Indicators published by the
              Department of Treasury and Finance.

             Set output performance targets in accordance with the business rules
              contained in Budget and Financial Management Guidance BFMG-09 Output
              Specification, Performance Measures published by the Department of
              Treasury and Finance.



Guideline

(i)      Regular measurement and reporting on performance indicators will promote a
         culture of continuous performance improvement.

(ii)     Financial KPIs for individual financial management team members should be
         developed and included as part of their annual (or other) performance
         management process. These financial KPIs should be directly aligned with the
         financial KPIs of the financial management team as a whole.

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(iii)   Performance of financial management team members should be measured and
        monitored as part of the Public Sector Agency’s performance management.

(iv)    Financial KPIs should be aligned with key objectives of the finance function and
        Public Sector Agency as a whole and should be simple to use and understand.

(v)     In terms of measuring a Government Department’s performance, financial KPIs
        should provide the tools for assessing the Government Department’s performance
        for the delivery of outputs (products and services) including the:

           Attainment of departmental objectives; and

           Delivery of Departmental outputs.

(iv)    BFMG-08 and BFMG-09 can be located in the Budget and Financial Management
        website (http://bfm.dtf.vic.gov.au). Only agencies that are connected to the
        Victorian Government common virtual private network can access this site. Please
        contact your portfolio coordinator directly if you have problems with access.




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4.5 Financial Management Compliance
Obligations

4.5.1 Compliance with Directions


Direction

Public Sector Agencies must certify that they have complied with all applicable Directions.


Procedure

Public Sector Agencies must—

    (a) certify annually, using the form provided by DTF for the purpose, that they have
        complied with all applicable Directions;

    (b) conduct an annual review of their obligations under these Directions; and

    (c) identify and rectify any failure or deficiency in complying with these Directions.



Guideline

Compliance with the Directions is generally monitored through the Financial Management
Compliance Framework.

Certification of compliance should be made annually to the Responsibly Body and/or Audit
Committee (or equivalent). Those public sector agencies subject to the Financial
Management Compliance Framework are also expected to certify their compliance with
these Directions annually to their Relevant Minister as per the requirements of the
Financial Management Compliance Framework.

For more information on the Financial Management Compliance Framework, refer to the
Department of Treasury and Finance website at http://dtf.vic.gov.au.


4.5.2 Taxation


Direction


Public Sector Agencies must demonstrate that they are complying with the legal
requirements of the Commonwealth of Australia relating to taxation obligations and
concessions.


Procedures


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Public Sector Agencies must in respect of the requirements and regimes established under
the laws of the Commonwealth of Australia—

      (a) certify annually that they have met requirements in relation to taxation compliance
          and concessions;

      (b) conduct an annual review of compliance with requirements in relation to taxation
          and concessions;

      (c) develop and maintain taxation policies and procedures for use by agency staff;

      (d) develop and implement a taxation education program for agency staff; and

      (e) identify and rectify any taxation compliance issues.




Guideline

Compliance with the Taxation Direction and Procedure is monitored through the Taxation
Compliance Rules and associated guidance.

Certification of compliance should be made annually to the Responsibly Body and/or Audit
Committee (or equivalent). Those public sector agencies subject to the Financial
Management Compliance Framework are also expected to certify their taxation compliance
status annually to their Relevant Minister as per the requirements of the Financial
Management Compliance Framework.

For more information on the Taxation Compliance Rules, refer to the Department of
Treasury and Finance website at http://dtf.vic.gov.au.


4.5.3 Purchasing Card


Direction
Public Sector Agencies that operate a purchasing card must comply with the following
Purchasing Card procedure.


Procedure
(a)       Public Sector Agencies which operate a Purchasing Card (“Card”) must:

              Establish their own facility account, including a maximum monthly account
               limit, directly with the Card provider;

              Ensure only one Card is issued to each employee approved as a cardholder;

              Ensure cardholders use the Card for official business and that purchases of
               goods and services are for Government purposes;

              Require cardholders to provide supporting documentation for all transactions
               and ensure that monthly statements are reviewed and approved by the
               appropriate financial delegate, and that any discrepancies identified with the
               cardholder or provider are resolved in a timely manner;


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             Ensure cardholders hold a financial delegation and their individual transaction
              limits do not exceed this delegation;

             Ensure that all individual Card limits do not exceed $25,000, unless approved
              by the Minister for Finance;

             Ensure adequate monitoring and security procedures are in place;

             Include in the internal audit program a review of the Card scheme and the use
              of cards issued; and
             Certify annually that they have followed this Purchasing Card procedure.

              See Guidelines 1 and 2 below

    (b)       The accountable officer must provide a written report to the Minister for
              Finance and the public sector agency’s audit committee in the event of a
              significant instance of unauthorised use of a purchasing card, as soon as an
              inquiry into the unauthorised use has been completed.

              See Guideline 3 below

    (c)       Each public sector agency to report annually to the Minister for Finance all
              instances of unauthorised use of its purchasing cards for the period ending 30
              June.

              See Guideline 3 below



Guidelines

Guideline 1
Public Sector Agencies are required to report annually on their compliance with Procedure
(a), as part of their annual compliance with the Directions generally. This is monitored
through the Financial Management Compliance Framework.

All instances of unauthorised use (as defined by the Purchasing Card Rules for Use and
Administration (the Rules)) must be reported annually to the Minister for Finance, in
accordance with Procedure (c).

In addition to the requirements above, in the event of a significant instance of unauthorised
use of a purchasing card, in accordance with Procedure (b), the accountable officer must
provide a written report to the Minister for Finance and the Public Sector Agency’s audit
committee as soon as an inquiry into the unauthorised use has been completed. A copy of
this report should also be provided to the relevant Minister.



Guideline 2
When implementing the necessary internal controls for the Card, Public Sector Agencies
and cardholders are encouraged to apply the principles set out in the Rules, issued by the
Department of Treasury and Finance.

The Rules outline guiding principles and procedures that should be followed in relation to
the use and administration of the Card. More detailed guidelines or policies, relating to the
use and administration of the Card may also be issued by Public Sector Agencies subject
to them being consistent with the Rules.


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For more information on the Rules, refer to the Department of Treasury and Finance
website at http://dtf.vic.gov.au. Only agencies that are connected to the Victorian
Government common virtual private network can access this site. Please contact your
portfolio coordinator directly if you have problems with access.

Guideline 3
A significant instance of unauthorised use should be determined by reference to Section 7
‘Unauthorised Use’ of the Rules.




4.5.4 Thefts and Losses



Direction
Public Sector Agencies must comply with the following Thefts and Losses procedure.


Procedure

(a.)   The Responsible Body must ensure that all cases of suspected or actual theft,
       arson, irregularity or fraud in connection with the receipt or disposal of money,
       stores or other property of any kind whatsoever under the control of a Public
       Sector Agency are notified to the Minister for Finance and the Auditor-General as
       follows:

           In respect to the receipt or disposal of money:

                  o   If the amount is equal to or exceeds $1,000, at the time of the
                      occurrence with an incident report to be provided within 2 months; or

                  o   If the amount is less than $1,000 annually for the period ending 30
                      June together with an incident report.

           In respect to stores and property of any kind:

                  o   If the value is equal to or exceeds $20,000, at the time of occurrence
                      with an incident report to be provided within 2 months; or

                  o   If the value is less than $20,000, annually for the period ending 30
                      June together with an incident report.

(b.)   An incident report prepared for the purposes of paragraph (b) must state, in
       addition to any other information that it appears appropriate to include:

           whether internal controls and systems have been reviewed;

           whether any weaknesses in internal controls and systems have been identified
            and have or will be rectified;

           the status of any proceedings, investigations or disciplinary actions; and

           what has been recovered, whether by way of money, stores, other property or
            insurance.


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Guideline

Public Sector Agencies are required to report annually on their compliance with
Procedures (a) and (b), as part of their annual compliance with the Directions generally.
This is monitored through the Financial Management Compliance Framework.

All instances of thefts and losses must be reported to the Minister for Finance and the
Auditor-General, in accordance with Procedure (a) either at the time of occurrence or
annually.

In addition to the requirements above, the Accountable Officer must provide a written
report to the Minister for Finance and the Auditor-General as soon as an inquiry into the
theft or loss has been completed.

A copy of any notification provided to the Minister for Finance and the Auditor-General
should be provided to the relevant Minister.




4.5.5 Risk Management Compliance


Background
The Victorian Government Risk Management Framework has been developed to support
best practice in public sector risk management. It provides a collective resource that links
a variety of risk management information sources and adds clarity to roles and
responsibilities, both for central agencies administering risk management policies and
service delivery agencies responsible for implementing risk management processes. The
framework provides for a minimum common standard across relevant Public Sector
Agencies to which this framework applies.

A common standard ensures that a generally accepted method of risk management is
being applied across the public sector, one which adopts a balanced methodology and
widely accepted approach to risk identification, analysis and risk reporting.      The
requirement that risk management practices within relevant Public Sector Agencies meets
the appropriate standard also ensures greater consistency.

This does not represent a change in government policy but rather formalises and builds on
existing processes.




Direction
Public Sector Agencies to which the Victorian Government Risk Management Framework
applies are required to implement and maintain risk management governance, systems
and reporting requirements as contained within the Victorian Government Risk
Management Framework.

Procedure
Relevant Public Sector Agencies must—

    (a) conduct an annual review of their obligations under this Direction;

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     (b) identify and rectify any failure or deficiency in complying with this Direction; and

     (c) provide an attestation that their risk identification and management plan is
         consistent with AS/NZS ISO 31000:2009 or equivalent.



Guideline

This Direction requires that a relevant Public Sector Agency take appropriate steps to
introduce an appropriate approach to risk management and requires that a sufficient level
of attention be given to the risks associated with its management.

In complying with this Direction, relevant Public Sector Agencies should refer to the
requirements of, and sample attestation contained within the Victorian Government Risk
Management Framework issued by the Minister for Finance in July 2007 and circulated to
all relevant public sector agencies.

The Victorian Government Risk Management Framework can be obtained from the
Department of Treasury and Finance or found at www.dtf.vic.gov.au.

For financial risk management requirements, refer to Direction 2.3 Financial Risk
Management.



4.5.5.1 Insurance


Background

Current Victorian policy requires Public Sector Agencies to assess their risk exposure and
manage that risk appropriately. This involves Public Sector Agencies making a judgement
on the amount of risk they can bear and, where they decide to bear that risk (e.g. by not
insuring an insurable risk), ensuring they are able to meet financial impacts from existing
resources.

These requirements are in place to ensure that insurance decisions are embedded in a
broader risk management framework and that departments and agencies bear the ultimate
accountability for protecting the resources they manage on behalf of the State.

Direction

An accountable officer of a Public Sector Agency required to insure with the Victorian
Managed Insurance Authority (VMIA) under the Victorian Managed Insurance Authority Act
1996 must verify that the Public Sector Agency is insured appropriately, having regard to
relevant Government guidelines and these Directions.

Procedure

Those Public Sector Agencies required to insure with the VMIA under the Victorian
Managed Insurance Authority Act 1996 must as part of their annual insurance renewal
process:

     (a) Determine the appropriate level of insurance in consultation with the VMIA. The
         appropriate level should be based on consideration of the risk profile and


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         objectives of the Public Sector Agency, its past claims experience, the availability
         and cost of insurance, and the type and scale of risks that the Agency is prepared
         to accept.

    (b) Maintain a current register of all insurance and indemnities and make this available
        to the VMIA on request. Indemnities include those provided by the Treasurer as
        well as indemnities provided contractually.

    (c) Record the valuation and basis for valuation of self-insured retained losses.

    (d) Provide information on claims management capability, resources, structures and
        processes for any self-insured retained losses to the VMIA.

An accountable officer of a Public Sector Agency required to insure with the VMIA must:

    (e) Attest that the Public Sector Agency has complied with these Directions.

Guideline

This Direction requires that a relevant Public Sector Agency take appropriate steps to
manage risks and requires that a sufficient level of attention be given to the insurance
arrangements associated with its risk profile and claims history.

In complying with this Direction, relevant Public Sector Agencies should refer to the
requirements of the Insurance Management Policy & Guidelines for General
Government Sector issued by the Department of Treasury and Finance.

Beginning from the 2012-13 financial year, an attestation should be included in the Public
Sector Agency’s annual report (for 2012-13 and all subsequent reports). A sample
attestation will be appended to the Insurance Management Policy & Guidelines for
General Government Sector issued by the Department of Treasury and Finance.




4.5.6 Treasury Risk Management



Background

The objectives of this Direction are to ensure that treasury risks are effectively identified,
assessed, monitored and managed by Public Sector Agencies, and that the strategies
adopted by Public Sector Agencies are consistent with the overall objectives of the
Government.

The State has a conservative philosophy for the management of treasury risks and
accordingly, Public Sector Agencies are encouraged to develop specific measures that
best address the borrowing and investment risks of their business.

Direction

Public Sector Agencies are required to undertake all borrowings, investments and financial
arrangements with a financial institution that is either a State owned entity or has a credit




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rating, assigned by a reputable rating agency, that is the same as or better than the State
           4
of Victoria subject to the following exceptions:

           Where a Public Sector Agency has been granted specific borrowing or investment
            powers under its constituting legislation, this Direction will not apply (see
            explanatory note);

           Where the investment is cash on hand in a transactional bank account with an
            ADI;

           Where the financial arrangement is a foreign currency hedging transaction of less
            than $1,000,000 undertaken with an ADI;

           Where a Public Sector Agency is operating a bank overdraft as part of its normal
            transactional banking operations;

           Where amounts invested by the Public Sector Agency with an ADI, excluding cash
            on hand in a transactional bank account, do not in aggregate exceed $2,000,000;

           Where the Public Sector Agency holds money, other than money held on trust for
            the State or a public body, invested pursuant to a statutory function to hold it on
            trust for a known beneficiary; or

           Where, following consultation with the Public Sector Agency’s portfolio Minister,
            the Treasurer has in writing approved otherwise.

Explanatory Note:

Where a Public Sector Agency merely has general powers to do things necessary or
convenient to perform its functions or achieve its objects, this Direction will apply to that
Agency’s borrowings or investments. Where specific borrowing and/ or investing powers
are provided e.g. investment powers for registered funded agencies under the Health
Services Act 1988, this Direction will not apply to those investments.

Procedure

Relevant Public Sector Agencies must—

       (a) conduct an annual review of their obligations under this Direction; and

       (b) identify and rectify any failure or deficiency in complying with this Direction.



Guideline

This Direction requires that Public Sector Agencies take the necessary steps to ensure a
prudent approach to treasury management and requires that a sufficient level of attention
be given to the risks associated with its operation.

For example, as part of the Government’s prudent approach to treasury risk management,
the Government has established the Treasury Corporation of Victoria (TCV) and the
Victorian Funds Management Corporation (VFMC) to centrally manage the State’s
borrowing, investing and financial market activities. Public Sector Agencies that conduct
any borrowing and/ or investment transactions with these agencies would comply with this
Direction.


4
    The State of Victoria was rated AAA by Standard and Poor’s and Moody’s at the time of issuing this Direction.



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TCV manages the State’s borrowings and short-term deposits and facilitates financial
arrangements to hedge, protect or manage the value of assets and liabilities. VFMC
manages the State’s long-term investments and implements diversified investment
strategies. Public Sector Agencies should be aware that TCV or VFMC do not offer bank
overdrafts and leases.

TCV can advise on appropriate funding, hedging and short term investing structures taking
into account the financial requirements and risk appetite of the Public Sector Agency.
Where it is clear that an Agency has a long term investment need, the Agency can
approach VFMC directly.

Agencies investing with VFMC must also develop an investment policy statement that—

    (a) contains guidelines for the management of the public body’s investments;

    (b) prior to being formally made or changed, has been given to DTF in draft for review
        and comment;

    (c) has been approved by the responsible body; and

    (d) when made or changed, has been provided to DTF together with, for noting, a
        copy of the minute documenting the approval of the responsible body.

The Department of Treasury and Finance can provide guidance with respect to this
requirement (refer contact details below).

Transition Arrangements

In terms of transition arrangements, there may be a number of Public Sector Agencies that,
prior to the issuance of this policy, have entered into short-term investments, such as term
deposits with commercial banks that may incur break costs if they are withdrawn prior to
maturity. Where substantial break costs for early withdrawal exist, these short-term
investments are permitted to continue to maturity, after which the proceeds must be
invested with the centralised agencies.

Department of Treasury and Finance Contact Details:

The Assistant Director, Financial Risk Management
Department of Treasury and Finance
Level 5, 1 Treasury Place
Melbourne VIC 3002




4.5.7 Foreign Exchange Risk Management


Background

The objectives of this Direction are to ensure that foreign exchange risks are effectively
identified, assessed, monitored and managed by Public Sector Agencies, and that the
strategies adopted by Public Sector Agencies are consistent with the overall objectives of
Government.

The State has a conservative approach to the management of foreign exchange risks and
accordingly, Public Sector Agencies are encouraged to develop specific measures that
best address the foreign exchange risk of their business.



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Direction

A Public Sector Agency that has a foreign currency exposure that is in aggregate
AUD1,000,000 or more and is known with certainty (with respect to the timing and a
minimum quantity) must fully hedge the exposure. Except with the prior written approval of
the Treasurer, all hedging transactions must be executed with TCV.

A Public Sector Agency that has a foreign currency exposure that is in aggregate less than
AUD1,000,000 and is known with certainty must hedge the exposure where it is considered
material. The transaction must be with TCV or an Authorised Deposit-Taking Institution
(ADI).

The accountable officer must verify that the requirements have been complied with.

Exemptions to the requirements of this Direction may only be obtained with the written
approval of the Treasurer. This Direction does not apply to foreign currency exposures
incurred by a Public Sector Agency where the funds are managed by VFMC, or by VFMC
acting as trustee on behalf of a Public Sector Agency, nor does it apply to money held on
trust for the private sector.

Procedure

Relevant Public Sector Agencies must—

     (a) conduct an annual review of their obligations under this Direction; and

     (b) identify and rectify any failure or deficiency in complying with this Direction.



Guideline

Foreign exchange risks are quantified by identifying all currently held assets and liabilities
denominated in foreign currency and identifying contractually committed future currency
transactions or cashflows. The foreign exchange exposure will exist until settlement or until
the exchange rate is fixed. The foreign exchange exposure is determined by aggregating
these balances by currency and settlement date and converting to Australian dollars at
current forward exchange rates.

Hedging transactions may only be closed out if a change in foreign currency receipts and
payments occurs and retaining the transaction results in a change in exposure levels.

Any funding bids that contain currency exposure should address the proposed currency
hedging strategy. Bids should price future foreign currency denominated payments at the
relevant forward rate which can be obtained from TCV. The preferred instrument for
hedging foreign currency risks is a forward foreign exchange rate contract. An option
strategy may be considered in exceptional circumstances, however this strategy will need
to be supported by a justifiable business case. In addition, the option premium costs will
need to be included in the funding bid.

For those Public Sector Agencies which do not have legislative powers to enter into
financial arrangements, they should contact the Department of Treasury and Finance to
arrange for approval.

Transition Arrangements

There may be a number of Public Sector Agencies that, prior to the issuance of this
direction, have entered into foreign currency hedges with financial institutions other than

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TCV. These hedging arrangements are permitted to continue to maturity, after which
hedging transactions involving foreign currency exposures that is in aggregate of
AUD1,000,000 or more must be executed with TCV.



Department of Treasury and Finance Contact Details:

The Assistant Director, Financial Risk Management
Department of Treasury and Finance
Level 5, 1 Treasury Place
Melbourne VIC 3002




4.5.8 Commodity Risk Management


Background

The objectives of this Direction are to ensure that commodity risks are effectively identified,
assessed, monitored and managed by Public Sector Agencies, and that the strategies
adopted by Public Sector Agencies are consistent with the overall objectives of
Government.

The State has a conservative approach to the management of commodity risks and
accordingly, Public Sector Agencies are encouraged to develop specific measures that
best address the commodity risk of their business.

Direction

A Public Sector Agency is responsible for developing appropriate policies and procedures
for managing exposure to specific commodity risk where it is considered these risks could
have a material impact on the business.

A Public Sector Agency must consider whether fully hedging the exposure is appropriate.

The accountable officer must verify that this requirement has been complied with.

This Direction does not apply to commodity exposures incurred by a Public Sector Agency
where the funds are managed by VFMC, or by VFMC acting as trustee on behalf of a
Public Sector Agency, nor does it apply to money held on trust for the private sector.

Procedure

Relevant Public Sector Agencies must—

    (a) conduct an annual review of their obligations under this Direction; and

    (b) identify and rectify any failure or deficiency in complying with this Direction.



Guideline

Where a Public Sector Agency has a material exposure to commodity risk, it should
consider fully hedging the exposure where it is known with certainty (with respect to the

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Updated May 2012
timing and quantity) and there are hedging instruments available in financial markets to
provide an effective hedge that is also cost effective.

In accordance with Standing Direction 4.5.6 a hedging transaction must be executed by
TCV. Should TCV be unable to offer a suitable hedging product, Treasurer’s approval is
required to transact with an alternative counterparty.

For those Public Sector Agencies which do not have legislative powers to enter into
financial arrangements, they should contact the Department of Treasury and Finance to
arrange for approval.

Transition Arrangements

There may be a number of Public Sector Agencies that, prior to the issuance of this
direction, have entered into commodity hedges with financial institutions other than TCV.
These hedging arrangements are permitted to continue to maturity, after which hedging
transactions must be executed with TCV.



Department of Treasury and Finance Contact Details:

The Assistant Director, Financial Risk Management
Department of Treasury and Finance
Level 5, 1 Treasury Place
Melbourne VIC 3002




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