1 Part III: The Budget process Resource Management and Budget Training November 2014

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Part III: The Budget process

Resource Management and Budget TrainingNovember 2014

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Resource Management and Budget Training — Part III

Contact and acknowledgement information

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Commonwealth Resource Management Framework

Legislative instruments Policy

Entity internal controls

reporting and evaluation

planning objectives and strategies

budgeting and operational planning

implementing and monitoring

PUBLIC RESOURCES

accountabilitygovernance

performancerisk management

appropriations

procurement

proper use

commitments

efficiency

earned autonomy

spendinggrants management

property management transparencyaudit

cooperation with others

Appropriationacts

PGPA Act Otherlegislation

Constitution

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• Commonwealth Resource Management Framework

• The Australian system of government

• Appropriations• The PGPA Act• Rules, policy and guidance• Other legislation

Part I: The Resource Management Framework

Part II: Use of public resources


• The Budget Framework• Planning and budgeting• Implementing and monitoring

• Reporting and evaluation

• Accountability and performance

• Risk management• Spending relevant money• Managing relevant property• Compliance reporting

The Budget Framework

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Planning and budgeting


Consolidated Revenue Fund

Non-taxrevenue

General taxation

6



Estimatesforward looking

(forecasts or projections)

Actualsbackward looking

(records and explanations)

200

200

200

200

201

201

201

201

201

202

202

2020

100

200

300

400

500

600

700

Payments

Receipts

$ bi

llion

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Budget roles and responsibilities


Prime Minister and Cabinet• agrees to the Budget process• approves new revenue and expenditure decisions

Expenditure Review Committee (ERC)• reviews portfolio ministers’ bids for funding (NPPs)

• includes expenditure, revenue and savings proposals• recommends to Budget Cabinet which proposals should be:

• fully developed for consideration in the Budget• included as final measures in the Budget

Parliamentary Budget Office (PBO)• prepares costings and analysis on financial or economic

matters, as requested by Members of Parliament

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Budget roles and responsibilities


Central departments (PM&C, Treasury, Finance)• manages Budget process in accordance with legislation, policy

and convention (Finance and Treasury) • costs all expense, capital and savings proposals (Finance)• costs all revenue proposals (Treasury)• manages Cabinet meetings and approvals for NPPs (PM&C)

Commonwealth entities• develop NPPs for consideration by Ministers, as part of Portfolio

Budget Submissions• update their estimates and actuals for public reporting

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Relevant legislation and policy


PGPA Act • requires accountable authorities to prepare

budget estimates

Charter of Budget Honesty Act• sets planning and reporting requirements• aims to improve policy outcomes and public scrutiny

Budget Process Operational Rules (BPORs)• sets out rules and timing for each year’s Budget process

Cabinet Handbook • sets out the process for preparing submissions

Section

36

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Charter reporting requirements


• Fiscal strategy statements (Budget Paper No 1)• Regular fiscal reporting

• Budget economic and fiscal outlook report• Mid-Year Economic and Fiscal Outlook (MYEFO) report• Final Budget Outcome (FBO) report

• Intergenerational reports• Pre-election economic and fiscal outlook reports• costings for election policies

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Contents of the Budget


Budget papers• No. 1 Budget Strategy and Outlook• No. 2 Budget Measures• No. 3 Federal Financial Relations• No. 4 Agency Resourcing

Appropriation bills• Appropriation Bill (No.1)• Appropriation Bill (No.2)• Appropriation (Parliamentary Departments) Bill (No.1)

Budget related• Portfolio Budget Statements• Budget Speech• Budget Overview• Budget at a Glance• Ministerial Statements

(Intergenerational Report)

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Budget tools


Central Budget Management System (CBMS)• Budget Estimates and Actuals Management (BEAM)

• Entities add agreed estimates for the NPPs• Finance reviews and validates the estimates

• Budget Policy and Coordination Database (BPCD)• details about the measures • links relevant estimates in BEAM

INPACT new policy and costings tracker• allows Finance to track policies and costings• captures submissions, NPPs, costing agreements and

Government decisions

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Three year budget cycle


Year 3: Post-budget year• reporting • audit

Year 1: Pre-budget year• fiscal strategy set

• allocation of public resources

• parliament and the public informed about these decisions

• appropriations put to Parliament for approval

Year 2: Budget year• monitoring and

adjusting

Planning objectives

and strategies

Budgeting and

operational planning

Implementing and

monitoring

Reporting and

evaluation

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Three year budget cycle


Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Government sets BPORs and

timing

Government undertakes

initial strategic budget planning

Portfolio minister

proposes policy priorities to the

PM

PM decides which proposals

may be submitted to

ERC

ERC considers policy priorities Portfolio departments prepare draft

PBSs

Finance agrees costings

contained in draft PBSs

Risk and assurance processes

Portfolio departments lodge final PBSs to Cabinet Secretariat

CBMS: pre-ERC estimates

update

ERC considers NPPs contained in the PBSs

CBMS: Budget estimates

update

Budget Cabinet considers NPPs

approved by ERC

Budget papers produced

Budget night (2nd Tuesday) Budget papers

and appropriation

bills introduced to Parliament

Senate Legislation Committee

hearings

Appropriation bills considered

and usually passed by

Parliament by end of June

Pre-Budget Year

Budget Year

Post-Budget YearEntities prepare annual reports

(audited by ANAO)

Final Budget Outcomes (FBO)

published by Finance

Entities’ annual reports published

Consolidated Financial

Statements (CFSs) audited by ANAO and published by

Finance

Finance Minister provides report to Parliament on the use of

Advances to the Finance Minister (AFMs)

Parliament passes AFM

report (usually by end of April)

Performance monitoring

MYEFO papers produced

Additional Estimates appropriation bills prepared

Senate estimates hearings

Additional estimates bills passed by Parliament (usually by end of April)

Supplementary additional estimates appropriation bills prepared and introduced to

Parliament, if required

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Planning objectives and strategies

Budgeting and operational planning

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Budget Process Operational Rules


Process Purpose Indicative timingGovernment sets operational timing Budget Process Operational Rules considered by Cabinet. Process and

timetable are formally setSeptember

Ministers submit draft proposals Ministers outline draft proposals for the coming budget October

Estimates updated at Mid-Year Economic and Fiscal Outlook

Estimates of spending and revenue are updated and policy decisions since the last Budget are reported

October/November

Budget priorities are set Ministers’ draft proposals are reviewed by Expenditure Review Committee and budget priorities are established.

Late November

Portfolio budgetsubmissions

Departments prepare submissions. Finance and Treasury agree on costings for all new policy proposals. All central departments provide feedback to portfolio departments on the quality and content of submissions coming forward in the context of the Budget.

January

Central departments review/pre-ERC estimates update

Central departments review submissions and Finance prepares briefs for ERC and pre-ERC estimates update

January/February

Expenditure Review Committee ERC reviews proposals and recommends which proposals should be included in the Budget (Finance Green Briefs inform this process)

March

Pre-budget review Entities update estimates to reflect ERC’s recommendations prior to finalising the Budget

April

Budget Cabinet Special sitting of Cabinet is held to consider and confirm ERC decisions and agree on final Budget measures

Late April

Budget night Government’s decisions about budget management are announced. Appropriation Bills tabled for consideration by parliament.

May

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Planning objectives

and strategies

Budgeting and


Pre-budget year


Government sets BPORs and timing

Government undertakes initial strategic budget

planning

Portfolio minister propose policy

priorities to the Prime Minister

Jan Feb Mar Apr May Jun

Jul Aug Sep Oct Nov Dec

Prime Minister decides which

proposals may be submitted to ERC

Portfolio departments prepare draft PBSs

Finance agrees costings contained in

draft PBSs



CBMS: pre-ERC estimates update

CBMS: Budget estimates update


ERC considers policy priorities


Budget Cabinet considers NPPs approved by ERC

Budget night (2nd Tuesday)

Budget papers and appropriation bills introduced to Parliament



Appropriation bills considered and usually passed by


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Costing process — key elements


Prepare

Understand and clarify policy

Cost departmental expenses

Cost administered expenses

Cost capital and ICT funding proposals

Interpret policyClarify key policy implementation issues

Ascertain if policy is being funded correctly

Assess general costing assumptions and

information

Assess staffing costs and standard on-costs or

overheads

Assess non-standard

operating costs

Assess operating costs associated with capital

funding protocols

Apply efficiency dividend

Apply indexation to forward year costs as

required

Assess assumptions behind the key cost drivers

Assess implementation and evaluation assumptions

Apply indexation to forward year costs as required

Assess general information and costing data

Clearly identify operating expenses associated with the

proposed capital asset

As required, seek expert input/assistance to

assess proposal (e.g. FMG, AMPS, AGIMO)

Does proposal require?1. Full business case2. Gateway clearance3. Two-stage clearance

Assess proposal (business case) with

lifecycle costing approach


required

Calculate impact on resourcing and Budget

balances

Costingsign-off

Understand Finance’s role in policy costing

Develop clear policy description, RPAT and complete costing

Understand Finance’s costing protocols

Planning objectives

and strategies

Budgeting and


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Where does an NPP come from?


A few things to remember:• Policy landscape is not a blank canvass• New policy can involve a change to an existing program or

activity.

Policies come from:• Government direction, such as election commitments• Entities, through improving core business or new ideas• Other sources, such as reports produced within or outside

Government

Planning objectives

and strategies

Budgeting and


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Discussion


Planning objectives

and strategies

Budgeting and


NPP to build and support schools in regional and remote areas(Page 2 of the Activity Book)

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Developing an NPP


Information government needs to make a decision about an NPP…

• what is being proposed and why?• does the proposal have authority to come forward?• which entities will be affected?• is there agreement between entities?• how will the proposal be implemented?• how much will it cost?• is legislation required?• what are the risks and how will they be managed?• are there any broader impacts?• have the right people been consulted?• how will performance be measured?

Planning objectives

and strategies

Budgeting and


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Prepare








information


overheads

Assess non-standard

operating costs


funding protocols



required













required


balances

Costingsign-off




Planning objectives

and strategies

Budgeting and


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Entities & Finance: High-level elements of a costing


• understanding the policy• costing departmental items• costing administered items

(on behalf of Commonwealth)• costing capital and ICT funding

(Gateway, 2 Pass review)

Considerations:• Number of staff required• Level of staff required• Assumptions• Cost components• Cost drivers

(price/volume)• Options• Business cases, etc

Planning objectives

and strategies

Budgeting and


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Prepare








information


overheads

Assess non-standard

operating costs


funding protocols



required













required


balances

Costingsign-off

Planning objectives

and strategies

Budgeting and


25


Entity and Finance: Risk assessment


to assess the broader impacts that an NPP could have, entities must consider:

• nature and intent of the proposal• components that are by nature higher risk (e.g., ICT, remote

distance), which require more detailed assurance processes• possible impacts on the different sectors, either directly or

indirectly:• regulatory impacts (consistent with Government’s red tape reduction

agenda)• families, indigenous, regional areas and small businesses

Planning objectives

and strategies

Budgeting and


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Activity: Preparing a costing for an NPP


(Pages 2-8 of the Activity Book)

Planning objectives

and strategies

Budgeting and


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Planning objectives

and strategies

Budgeting and


Pre-budget year




planning









draft PBSs











Senate Legislation Committee hearings



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Preparing Portfolio Budget Submissions


• prepared on a portfolio basis• presented to Cabinet by the relevant Minister• Cabinet Handbook process

• costings agreed between entity and Finance from relevant entities and central departments

• exposure drafts of the submission distributed • coordination comments obtained from relevant entities and

central departments• final submissions then provided to ERC

Planning objectives

and strategies

Budgeting and


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Expenditure Review Principles


Effectiveness

Evidence

Efficiency

IntegrationPerformance assessment

Strategic policy alignment

Appropriateness

Planning objectives

and strategies

Budgeting and


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Discussion: Expenditure Review Principles


Examine the costing you prepared in light of the Expenditure Review Principles

• How would you weigh the different principles in this particular scenario?

• Would you weigh them differently for other types of costings?

Planning objectives

and strategies

Budgeting and


(Pages 2-8 of the Activity Book)

31


Budget Cabinet


Expenditure Review Committee decisions

Cabinet decisionsBudget Cabinet

Planning objectives

and strategies

Budgeting and


32

Budget Night: Budget delivered to Parliament


Planning objectives

and strategies

Budgeting and


33


Contents of the Budget


Budget papers• No. 1 Budget Strategy and Outlook• No. 2 Budget Measures• No. 3 Federal Financial Relations• No. 4 Agency Resourcing

Appropriation bills• Appropriation Bill (No.1)• Appropriation Bill (No.2)• Appropriation (Parliamentary

Departments) Bill (No.1)

Budget related• Portfolio Budget Statements• Budget Speech• Budget Overview• Budget at a Glance• Ministerial Statements

(Intergenerational Report)

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Planning objectives

and strategies

Budgeting and


Parliamentary consideration of Appropriation Bills




planning









draft PBSs











Senate Legislation Committee hearings



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Activity: Budget Family Feud


36












Implementing and monitoring


37


Budget year


• programmes may require adjustment




MYEFO papers produced

Additional Estimates appropriation bills prepared

Additional estimates bills

usually introduced to Parliament

Senate estimates hearings

Additional estimates bills passed by Parliament (usually by end of April)

Supplementary additional estimates appropriation bills prepared and introduced

to Parliament, if required

1 Julybudget year begins


Implementing & monitoring

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Reasons for adjustments


• new or revised Government decision(s)• programme specific parameter changes• movement of funds• interest equivalency payments• changes in environment $


39


Estimates preparation


Entities:• prepare estimates and supporting documentation• enter into CMBS and amend as necessary

Finance :• validates entity estimates• checks for authority, appropriate explanation, accuracy and

impact on baseline and financial statements• prepares consolidated reports


40

Additional annual appropriation Bills



Budget Additional estimates

Supplementary additional estimates

Bills 1 & 2

Bills 3 & 4

Bills 5 & 6

Introduced in May

Generally introduced February to April

Introduced in May


41


Activity: Estimates and reports


Performance indicators, estimatesand reports (Pages 12-15)


42












Reporting and evaluation


43


Relevant legislation


PGPA Act • requires financial and performance reports from entities• focus on better information for Parliament and the public• clear line of sight from corporate plans and PBS

to annual reports

Charter of Budget Honesty Act • specifies arrangements for budget reporting

Auditor-General Act • specifies the auditing role and responsibilities of the

Auditor-General and the ANAO

Reporting and

evaluation

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Reporting requirements


Budget night

MYEFO / Additional Estimates

Entity annual reports

Final Budget

Outcome


Statements




Pre-budget year:

Budget year:

Post-budget year:

Monthly financial statements

Budget reporting• annual forecast• support Budget-related decisions of Government• provides the fiscal outlook for the economy

Budget-year reporting• provides updated estimates• allows assessment of performance against fiscal strategy• takes into account government decisions

Post-budget outcomes• compares actual results to previous estimates• covers Commonwealth public sector,

general government sector and individual entities

Reporting and

evaluation

45

Post budget year reporting




Entities’ annual reports published

Final Budget Outcomes (FBO) published by Finance

Finance Minister provides report to Parliament on the use of Advances to the

Finance Minister (AFMs)


Statements (CFSs) audited by ANAO and published by

Finance

Parliament passes AFM report (usually by end of April)

Entities prepare annual reports (audited by ANAO)

Reporting and

evaluation

46


End-of-year outcomes

Final Budget Outcome (FBO)• General government sector only• required by the Charter• prepared by Finance, not audited

Entity annual reports• principal transparency and

accountability document• to the relevant portfolio minister• focus on performance

Consolidated Financial Statements• Commonwealth public sector• disaggregated financial information• prepared by Finance, audited


General government sector (GGS)

Corporate Commonwealth entities Commonwealth companies

Non-corporate Commonwealth entities

Government business enterprises (GBEs)

Public Non-Financial Corporations

Public Financial Corporations

Reporting and

evaluation

Commonwealth public sector

47


Monthly reporting requirements


• Important budget tracking mechanism for government • how do actual expenses vary from the Budget?

• Assists with International Monetary Fund reporting• Flows into Australian National Accounts

published by the Australian Bureau of Statistics

Monthly financial statements


Reporting and

evaluation

48


Accounting standards and statistics


Reports prepared to Australian Accounting Standards (plus any modifications issued by the Finance Minister)

Australian Accounting Standards

Focus on financial performance, position and

stewardship over resources

Government Finance StatisticsAASB 1049

Harmonisation Focus on the government’s impact on the

economy

Reporting and

evaluation

49


Major fiscal aggregates


Fiscal balance

• accrual measure• shows whether the

government has to borrow from financial markets to cover its activities

Net worth

• economic measure of wealth

Underlying cash balance

• cash measure• shows whether government has to

borrow from financial markets to cover its activities

Net debt

• common measure of the strength of government’s financial position

• used in cash accounting

(assets) minus (liabilities)(interest-bearing debts) minus (associated financial assets)

(operating receipts) minus(operating payments) minus(Future Fund net receipts) minus(investment in non-financial assets)

(revenue) minus(expenses) minus(investment in non-financial assets)

Reporting and

evaluation

50


Activity: Reviewing reports


Reporting and

evaluation

51


Recap

Year 3: Post-budget year• reporting • audit

Year 1: Pre-budget year• fiscal strategy set

• allocation of public resources

• parliament and the public informed about these decisions

• appropriations put to Parliament for approval

Year 2: Budget year• monitoring and

adjusting

Planning objectives

and strategies

Budgeting and


Implementing and

monitoring

Reporting and

evaluation

52

Commonwealth Resource Management Framework

Legislative instruments Policy

Entity internal controls

reporting and evaluation

planning objectives and strategies

budgeting and operational planning

implementing and monitoring

PUBLIC RESOURCES

accountabilitygovernance

performancerisk management

appropriations

procurement

proper use

commitments

efficiency

earned autonomy

spendinggrants management

property management transparencyaudit

cooperation with others

Appropriationacts

PGPA Act Otherlegislation

Constitution

53












Wrap up

54


Questions and feedback

? Excellent Very good Good Average Poor

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Further information

Department of Finance• finance.gov.au

Australian Government Budget• budget.gov.au

Public management reform• pmra.finance.gov.au

Resource Management and Budget training• finance.gov.au/resource-management/training

http://www.finance.gov.au/

http://budget.gov.au/

http://www.pmra.finance.gov.au/

http://www.finance.gov.au/financial-framework/training/fmb-program.html

Documents

1 Part III: The Budget process Resource Management and Budget Training November 2014