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Financial Management Compliance Framework (FMCF)
 

Financial Management Compliance Framework (FMCF)

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  • Mechanism for monitoring and review is same as for Tax Compliance Framework (which Wayne McKenna was heavily involved in) ie: the is based on the TCF Financial Management Package - FMA - Standing Directions of the MfF - Ministerial Directions - Financial Management Regulations - Financial Reporting Directions - Audit Act Responsibilities are clarified through the reporting/certification process itself and throughout the Ministerial Directions Comes into effect from 1 July 2003, with first reporting year ended 30 June 2004

Financial Management Compliance Framework (FMCF) Financial Management Compliance Framework (FMCF) Presentation Transcript

  • Financial Management Compliance Framework (FMCF)
  • Agenda
      • Welcome
      • Overview of the Framework
      • The new financial management rules
        • Standing Directions of the Minister for Finance under the Financial Management Act 1994
      • What should agencies be doing
      • Using the FMKC website
  • Overview of the framework
  • Purpose of the FMCF
      • Provide a mechanism through which government can monitor and review compliance with financial management requirements ie: the Financial Management Package
      • Provide Portfolio Ministers, Minister for Finance (MfF) and Parliament with assurance that VPS entities have implemented appropriate systems to ensure effective, efficient and responsible financial management of public resources
      • Clarify responsibilities for ensuring financial management compliance and reporting on compliance (at WoG, Portfolio, Agency levels)
  • Key stakeholders
      • Over 300 public sector agencies listed in the Annual Financial Report (AFR) for Vic government , their CEOs/Secretaries, management and employees
      • Board & Audit Committee members
      • Internal Auditors
      • Victorian Auditor-General
      • Portfolio Ministers and the Parliament
  • Timelines Phase 1 Framework development Phase 2 Rules development Phase 3 Roll out & communication Phase 4 Compliance & reporting Aug 01 July 02 Sep 02 Jun 03 1 July 03 16 July 03 July-Aug 03 Jan 04 Jun 04 Framework development commences Framework endorsed New rules issued as exposure draft for 3 month comment period Rules issued as final for roll out from 1 July 03 New ru les come into effect Official launch by Minister for Finance End of transition period for Part 2 End of year 1 implementation DTF communication across WOG Entity and department certification Aug/Sep 04
  • 3-tier compliance reporting structure DTF Minister for Finance Departments Portfolio Ministers VPS Entities Whole-of-Government Level Portfolio Level Entity Level Accountability rests with individual entities Issue Rectification, Certification & Reporting Support & Monitoring
  • Certification process
      • Standard certification checklist based on the Directions
      • Signed by Accountable Officer annually
      • Certification period is 1 July – 30 June
      • May not correspond to financial year
      • Certification required by 30 September
      • Expectation in years one and two that there will be instances of partial compliance and non compliance
      • Focus should be on moving towards full compliance
  • Ongoing Monitoring
      • DTF will develop a monitoring regime
      • Regime will include visits to selected entities to
        • validate certification
        • review supporting documentation
        • assess progress of rectification programs
      • Suggested pilot certification for selected entities in first 6 months of 2004
      • Late 2004 DTF will commence assurance reviews
  • The new financial management rules
  • The Directions Standing Directions of the Minister for Finance Three high level leading edge financial management principles
    • Financial Management
    • Governance and Oversight
    • Financial code of practice
    • Financial governance
    • Financial risk management
    • Delegations of authority
    • Internal audit
    • External audit
    • Financial Management
    • Structure, Systems, Policies
    • and Procedures
    • Financial management structure
    • Information technology systems
    • Education and training
    • Policies and procedures
    • Financial Management
    • Reporting
    • Internal financial management reporting
    • Reporting requirements in terms of part 7 of the FMA
    • Other external reporting
    • Financial performance management and evaluation
  • Overview of the Directions
      • Directions outline high level requirements for financial management, not a detailed prescriptive approach
      • Elements of the Directions are mandatory, under the headings:
        • Directions
        • Procedures
      • Other elements are advisory and provide guidance in best practice
      • Part 2 of the Directions are the significant new component, Parts 3 and 4 summarise previous detailed Directions
      • Six month transition period for full compliance with Part 2 of the Directions
  • The Directions Standing Directions of the Minister for Finance Three high level leading edge financial management principles
    • Financial Management
    • Governance and Oversight
    • Financial code of practice
    • Financial governance
    • Financial risk management
    • Delegations of authority
    • Internal audit
    • External audit
    • Financial Management
    • Structure, Systems, Policies
    • and Procedures
    • Financial management structure
    • Information technology systems
    • Education and training
    • Policies and procedures
    • Financial Management
    • Reporting
    • Internal financial management reporting
    • Reporting requirements in terms of part 7 of the FMA
    • Other external reporting
    • Financial performance management and evaluation
  • Financial Governance
      • Establish robust and transparent financial governance policies and procedures directed to the oversight of its financial management
      • Major elements include:
        • review and monitor financial reports of entity, including budgets
        • set strategic direction
        • oversight of use of public funds and resources appropriately
        • oversight of entity’s risk management and financial controls
      • The Responsible Body can delegate some of its responsibilities, to an Audit Committee, Finance Committee or equivalent
  • Financial Governance cont.
      • Entities must establish an Audit Committee with at least 2 independent members. Exemptions can be sought for this requirement
      • Factors to consider:
        • can be remunerated for their role as Director
        • members should be drawn from the Board
        • definition of independence in the Directions is guidance but consistent with recent Australian guidance
      • Where the Responsible Body is a board the Audit Committee must have at lest 3 non-executive directors and a majority of whom are independent
      • Accountable Officer (AO) and CFAO are not to be members of the Committee
    Audit Committees
  • Financial Governance cont.
      • Chairperson of the Audit Committee is to be an independent member and must not be the Chairperson of the Responsible Body
      • The Committee should have a Charter which is approved by the Responsible Body and formally reviewed at least every three years
      • Members of the Audit Committee must possess key qualifications
        • basic financial literacy
        • knowledge of entities risks and controls
        • objectivity and independence of judgement
        • industry knowledge and business experience
        • adequate time to discharge responsibilities
    Qualifications
  • Financial Governance cont.
      • Audit Committee areas of focus:
        • review Audit Committee Charter against template and other best practice material
        • review qualifications and skills of Audit Committee members
        • ensure independence of Audit Committee members
        • ensure role of Audit Committee consistent with the Rules
        • assess whether exemption may be appropriate and consider what information required to support exemption
  • Financial Risk Management
      • Assess adequacy of existing risk management activities at organisation against the Directions
      • Consider minimum required to ensure compliance or partial compliance with financial risk requirements
      • Focus of activities should be on:
        • ensuring financial risks have been formally considered in annual planning and budget process
        • adequate documentation to support identification and monitoring of financial risks’
        • process in place to review risks on a regular basis to ensure currency and relevance and new risks identified
  • Financial Code of Practice
      • Entities are required to implement and maintain a financial code of practice
      • Cohesive statement of the entity’s internal processes to ensure probity on financial management
      • Areas of focus:
        • prepare a C ode before 31 December
        • get the Code approved by the Audit Committee and the Board
        • publish the Code to all staff – make sure there is a process to confirm that staff have read and understood the Code
        • develop monitoring mechanisms for compliance with the Code
  • Delegations of Authority
      • Financial delegations of authority must be established and maintained
      • Financial delegations must be maintained in a register which is reviewed and approved annually
      • Appropriate level of detail must be included in the delegations to ensure clarity of responsibility
      • Major areas of focus:
        • review adequacy and currency of delegations
        • update delegations as required before 31 December
        • consider how delegations promulgated and accessed to staff
        • verification that delegations are being utilised appropriately
  • Internal Audit
      • Entities must establish and maintain an adequately resourced independent internal audit function
      • Exemptions may be sought for this requirement
      • Internal Audit Charter must be developed and approved by the Audit Committee
      • Annual plan to be based on the entity’s risk profile and be approved by the Audit Committee
      • Audit Committee will review internal auditor performance and focus of work
      • Entity should have mechanisms to monitor actions taken to resolve issues raised by internal audit
  • External Audit
      • Entities must establish and maintain a constructive, open working relationship with the Auditor General
      • Audit Committee and the Auditor General must meet throughout the year to discuss the proposed audit objectives, a briefing of the audit process and discuss the outcomes of the audit
  • The Directions Standing Directions of the Minister for Finance Three high level leading edge financial management principles
    • Financial Management
    • Governance and Oversight
    • Financial code of practice
    • Financial governance
    • Financial risk management
    • Delegations of authority
    • Internal audit
    • External audit
    • Financial Management
    • Structure, Systems, Policies
    • and Procedures
    • Financial management structure
    • Information technology systems
    • Education and training
    • Policies and procedures
    • Financial Management
    • Reporting
    • Internal financial management reporting
    • Reporting requirements in terms of part 7 of the FMA
    • Other external reporting
    • Financial performance management and evaluation
  • Financial management structure
      • Entities must establish an effective internal control system which should:
        • support the effectiveness and efficiency of operations
        • deliver reliable internal and external reporting
        • achieve compliance with laws and regulations
      • The internal control system will be underpinned by:
        • financial management team structure
        • Chief Financial and Accounting Officer (CFAO)
        • appropriate policies and procedures
  • Financial Management Structure cont.
      • Entity must select a CFAO with the necessary prerequisite skills, qualifications and experience
      • The key impacts of the new Directions on the CFAO’s will be:
        • first year gap analysis to assess entity’s compliance
        • annual certification to the Responsible Body on the financial reports, the entity’s risk profile and the internal control system
        • sufficient supporting documentation to support certification
        • ongoing monitoring of entity’s compliance with the Directions
    CFAO
  • Information technology systems
      • IT systems must be appropriate to support sound financial management
      • IT should be adequately resourced by appropriately skilled staff
      • Areas of focus:
        • has the organisation got clearly defined IT structure with adequate roles and responsibilities
        • is there an annual process to review IT needs and requirements
        • adequacy of DRP and BCP plans – do they exist, are they current and have they been tested recently
        • focus on management of the IT area particularly around project implementation
        • adequacy of IT security – evidence that Internal Audit has recently reviewed this area
  • Policies and procedures
      • Policies and procedures must be developed for all key business processes
      • For smaller entities it would be expected that policies and procedures are documented for all business processes which are critical to their operation
      • Specific issues to note:
        • list in the Directions may not be exhaustive
        • in relation to 3.4.5 Procurement, entities not required to comply with this rule should consider using the Victorian Government Purchasing Board guidelines as a basis for good practice
        • guidance material available to assist in development or improvement of policies and procedures
    G
  • Policies and procedures cont.
      • Major areas of focus:
        • review existing policies and procedures against FMCF guidelines, identifying gaps and deficiencies
        • develop plan to review and update policies and procedures over next period
        • consider which policies and procedures are most important and prioritise
        • ensure formal sign off and approval for all policies and procedures
  • Other areas to consider
      • Outsourced Financial Services
        • could include the following:
          • investment managers
          • outsourced payroll provider
          • shared service arrangements
        • must have the following:
          • service level agreement with performance measures and indicators
          • mechanisms to review control environment of provider – could be internal audit or letters of assurance
          • regular review of performance of provider and costs of service
  • Other areas to consider cont.
      • Training
        • has the organisation got clearly defined and organised training program
        • what mechanism exists to ensure that finance staff are getting appropriate training for their role
      • Chart of Accounts
        • review adequacy of Chart of Accounts
        • is there adequate supporting documentation for each account
  • The Directions Standing Directions of the Minister for Finance Three high level leading edge financial management principles
    • Financial Management
    • Governance and Oversight
    • Financial code of practice
    • Financial governance
    • Financial risk management
    • Delegations of authority
    • Internal audit
    • External audit
    • Financial Management
    • Structure, Systems, Policies
    • and Procedures
    • Financial management structure
    • Information technology systems
    • Education and training
    • Policies and procedures
    • Financial Management
    • Reporting
    • Internal financial management reporting
    • Reporting requirements in terms of part 7 of the FMA
    • Other external reporting
    • Financial performance management and evaluation
  • Internal financial management reporting
      • Entities must implement and maintain timely, accurate, appropriate and effective reporting on financial matters for use in management decision making
      • Management financial reports should include budget v actual analysis
      • Reports should be reconciled with the general ledger and reviewed by the CFAO or appropriate senior finance staff
      • Feedback on adequacy of financial reports should be sought from relevant management
      • Reports should be presented on a timely basis both for internal and external purposes
  • Areas of focus for reporting
      • Internal Reporting
        • assess the adequacy of management reporting and the KPI’s
        • ensure appropriate review and approval process
      • External Reporting
        • review the 2003 year end reporting process against the Directions and identify any gaps
          • approval process with CEO and management
          • certification by the CEO and CFO
          • meeting timetable for the AG and Parliament
  • Financial performance management and evaluation
      • Entities must develop appropriate financial management performance indicators and monitor performance against these to identify key statistics and trends for use in management decision making
      • Financial Key Performance Indicators (KPI’s) must be developed by the CFAO and Accountable Officer as appropriate for the entity
      • KPI’s must be measured, monitored and reported on a regular basis to the Responsible Body
  • Exemptions
      • Exemption Criteria
        • criteria now on FMKC website
        • meeting criteria does not automatically mean exemption provided
        • DTF has final decision and agency must ensure adequate information to support the decision
        • must be reassessed annually and new request submitted to DTF
      • Other factors may be considered in decision making:
          • public profile
          • financial risk
          • previous issues not fully resolved
  • What should agencies be doing
  • What should agencies be doing
      • Gap analysis of financial management against FMCF
      • Brief the CEO on FMCF and agency responsibilities under FMCF
      • Reporting to Audit Committee on current level of compliance
      • Report to Audit Committee on progress in meeting compliance with the FMCF
      • Consider role of Internal Audit in validating agency compliance
  • Using the FMKC Website
  • FMCF and TCF web based tool
    • Financial Management Compliance Certification
    • Tax Compliance Certification
    • Library – FMP
    • What’s New?
    • Key events and dates
    • Issues management
    • Compliance -
    • Library
    • What’s New?
    • Key events and dates
    • Issues management
    Financial Management Knowledge Centre Username: doj Password: fmkcdoj DTF W eb S ite Financial Management Knowledge Centre (www.fmkc.dtf.vic.gov.au) Tax Knowledge Centre (www.tkc.dtf.vic.gov.au) Compliance Monitoring System (www.cms.dtf.vic.gov.au)
  • Financial Management Knowledge Centre
    • The Library
      • Legislation, including the Financial Management Package
      • Standing Directions of the Minister for Finance;
      • Standing Directions of the Minister for Finance - Guidance Material;
      • Financial Management Compliance Framework; and
      • Financial Reporting Directions.
    • Issues Management System
      • Resolutions to various issues raised.
    • Compliance
      • Financial Management Compliance Framework;
      • Standing Directions of the Minister for Finance;
      • Standing Directions of the Minister for Finance - Guidance Material;
      • Exemption Criteria;
      • Frequently Asked Questions;
      • Newsletters;
      • Seminars/Briefings; and
      • Purchasing Card Compliance.
  • Guidance Material
      • Guidance materials have been provided on the following areas:
        • pro forma charters
        • pro forma policy & procedures
        • template letters
        • pro forma financial code of practice
        • exemption criteria
  • Questions ?