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Minister for Finance's speech at launch of the FMC Framework ... Minister for Finance's speech at launch of the FMC Framework ... Document Transcript

  • JOHN LENDERS MLC, MINISTER FOR FINANCE LAUNCH OF THE FINANCIAL MANAGEMENT COMPLIANCE FRAMEWORK WEDNESDAY 16 JULY 2003 TREASURY THEATRE A key platform of this Government’s agenda has been to provide leadership in the financial management of Victoria. This is in recognition of the fact that a strong financial base is vital for Victoria’s economic, social and environmental well-being. Compliance and reporting are key to ensuring a high-level of accountability and transparency in all Government business. Today I would like to discuss why the Bracks Government considers compliance as fundamental to the health of our economy, and the measures we have taken to enshrine compliance as part of the Government’s accountability agenda. I would also like to talk about your responsibility as Victorian Public Sector entities in making compliance a part of the way you do business. Compliance is often characterised as the “boring” processes and tools of financial management - the checks and balances managed by the accountants. However, as we all know the costs of poor compliance are high – to organisations, and to the broader community. The recent failures of companies including Enron and HIH demonstrate the importance of sound compliance and reporting practices. 1
  • These examples demonstrate to us that compliance and reporting are more about responsibility, risk management, confidence and ethics. Compliance and reporting is the fundamental basis on which companies demonstrate their performance and ensure their wealth. The increased transparency and frequency of reporting within the Victorian public sector is, in part, due to the experiences of recent history. We came to government having witnessed the 1997 Asian economic crisis. One of the key lessons of this period was that investor confidence in government and private institutions – demonstrated through transparency – can save you from spiralling economy wide woes. The 1997 Asian economic crisis led to sharp declines in the currencies, stock markets, and other asset prices of a number of Asian countries. This threatened their financial systems and created a large contraction in economic activity. The net result of this was considerable social harm. While there was some concern at the time that Australia might be affected – this turned out not to be the case. A prime reason for Australia’s resilience was the transparency and maturity of our financial markets. Sound reporting and compliance practices are also fundamental at the organisational level as well as at the macroeconomic level. Improving the amount and general availability of information to investors and stakeholders serves to support the efficient running of individual companies. 2
  • Reporting and compliance in our economy ensures that the economic and financial signals reach investors and taxpayers as quickly as possible. Poor performance should not be allowed to go unreported as long as it did with HIH and Enron. In coming to office in 1999, the Victorian Government promised the electorate – as one of the 4 key pillars of its election platform – to restore democracy through open and accountable government. The Government has restored the powers of independent watchdogs, such as the Director of Public Prosecutions, the Ombudsman and the Auditor-General, with the Auditor-General’s powers entrenched in the Victorian constitution. Uniquely in Australia, the financial responsibility legislation also gives the Auditor-General additional powers to conduct a review of the State budget. Within six months of being elected the Government introduced new financial responsibility legislation, which dramatically improved the reporting of aggregate financial outcomes to the Parliament and the public. Previously there was no within-year external reporting for the Budget sector – only end of year results were published and there was no reporting for the larger consolidated state sector at all. 3
  • The new legislation requires quarterly financial reports for the budget sector, and half yearly reports for the state public sector. This is the most comprehensive reporting of any State or Territory in Australia, informing the Parliament and the public quickly of any developing budget trends or problems. Further, when a general election is called, the Department of Treasury and Finance is required to prepare a pre-election budget update that contains updated financial statements and any changes in the assumptions and sensitivities underpinning these. In addition to this increase in the number of financial reports, the new legislation demands very quick turnaround times. As I am sure you are all aware:  Budget sector reports are provided 6 weeks from the end of the quarter they report on;  half year state sector reports are provided 10 weeks from the end of the half year they report on; and  the pre-election Budget Update is provided 10 days from the calling of the election. The changes in reporting requirements over the last 5 years have been immense – requiring new skills, new systems and new approaches to financial management. Such reporting across this range of entities has few parallels in either the public or private sectors. The Victorian Government’s budget sector 4
  • operations equate to about the size of Coles Myer’s national operations, with a balance sheet about half of a major bank. This large-scale change could only have been achieved with the co-operation of agencies right across the public sector. It is a credit to departments and agencies for joining the Department of Treasury and Finance in accomplishing the introduction of these requirements. Now we are progressing to the next step in this suite of reforms. While the Victorian Public Sector has always had a Financial Management Compliance Framework of sorts, it hasn’t been fully articulated or appropriately structured until now. As the Minister for Finance I have responsibility for ensuring the Government meets its obligations under the Financial Management Act 1994, and I am a very strong supporter of improved financial management. Consequently, I asked DTF to develop a robust framework to provide a mechanism by which this Government could monitor and review financial management compliance. The Financial Management Compliance Framework that I am launching today is the culmination of this work by DTF, and it has been developed to do a number of things. 5
  • Firstly, it gives me an assurance that any deficiencies in financial management are easily identified and addressed. Secondly, it discharges my responsibility to the Parliament, that public resources are being managed in a financially responsible manner. And thirdly, it focuses responsibility for financial management at both portfolio and entity level. As I have discussed previously the Government has introduced wide-ranging reforms aimed at increasing transparency across the Victorian Public Sector. Under the Bracks Government, this responsibility has been devolved to rest with the accountable officer in individual entities. I believe there is a strong compliance culture amongst VPS entities but the Government has some concerns about the current level of financial management compliance of Victorian Public Sector entities. While each entity currently undertakes some form of compliance, for example, taxation or credit card compliance, it is often carried out on a fragmented basis within various areas of the organisation. What the Framework will do is bring all of these activities together in a structured manner, minimising the cost of compliance in the process. The Framework provides us with a mechanism that will allow closer scrutiny of entities through a monitoring system, introducing a level of transparency that has not existed until now. The Framework will also assist Victorian Public 6
  • Sector entities achieve the goals of the organisation whilst simultaneously meeting the Government’s accountability requirements. The Framework ensures that entities and Departments are fully accountable for meeting their compliance obligations, embedding financial management compliance into existing work practices, rather than it being an afterthought. Accountability for compliance will rest with you as Victorian Public Sector entities. The Financial Management Compliance Framework will promote proactive assurance through an annual entity certification process. Like the credit card framework, this will require accountable officers to attest that they have complied with the Standing Directions. By providing the Government with relevant, up-to-date and accurate information on key financial management issues, the Framework will reveal non-compliant entities. This early warning system will provide Ministers, Departments and Agencies with the opportunity of working together to manage risks and obligations. DTF will be actively involved in whole-of-government education and information sessions, and will coordinate a knowledge centre to share experiences and information across the VPS. 7
  • The Financial Management Compliance Framework illustrates this Government’s commitment to increasing the strength of financial transparency and compliance. As Victorian Public Sector entities this accountability encompasses your organisations as well. DTF has undertaken large-scale consultation with entities in re-writing the Standing Directions of the Minister for Finance under the Financial Management Act 1994. The Standing Directions are the mandatory elements that must be complied with by all Victorian Public Sector entities, and represent the underpinning principles of the Financial Management Compliance Framework. This launch is the initial communication activity for the Financial Management Compliance Framework. Over the next few months there will be a series of workshops in regional locations to communicate the Framework across the whole Victorian Government Sector. I encourage you to see this as more than just an issue of compliance or checks and balances, and challenge you instead to see the Framework as a tool to implement a culture of accountability and transparency into your business practices. 8
  • I would now like to officially launch the Financial Management Compliance Framework, and I urge you all to become familiar with it and the requirements of the Directions. It is an area that I intend to focus my attentions on throughout the coming financial year, and the Government expects you all to embrace, adopt and implement this important initiative throughout your respective organisations. It is essential that we all work together to ensure that the Victorian Government meets its financial management obligations. This is vital in maintaining public and business confidence and ensures we abide by the highest standards in the management of public resources. 9