Financial Management Compliance Framework (FMCF)

Financial Management Compliance Framework

(FMCF)

Financial Management Compliance Framework

(FMCF)

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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

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Overview of the framework

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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)

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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

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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 rules 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

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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

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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

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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

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The new financial management rules

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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,

Policiesand 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

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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

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The Directions




Oversight





Internal audit

External audit












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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

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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

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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

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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

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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

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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 Code 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

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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

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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

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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

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The Directions




Oversight





Internal audit

External audit












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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

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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

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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

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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 proceduresG

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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

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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

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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

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The Directions




Oversight





Internal audit

External audit












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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

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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

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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

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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

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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

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Using the FMKC Website

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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 CentreUsername: doj

Password: fmkcdoj

DTF Web Site

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)

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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.

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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

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Questions ?

Documents

Financial Management Compliance Framework (FMCF)