Legal and policy obligations

Before the Deputy Commissioner of Taxation (DCT) can approve an indemnity and grant Commonwealth resources (public monies), the DCT must consider a range of legal obligations and government policies, some of which are outlined below:

  1. The Financial Management and Accountability Act 1997 (FMAA). In particular:
    1. Section 44 of the FMAA requires a Chief Executive (which includes the Commissioner), to manage the affairs of their agency in a way that promotes proper use (efficient, effective, economical and ethical use consistent with government policies) of the Commonwealth resources for which the Chief Executive is responsible. In doing so, the Chief Executive must comply with the FMAA and regulations, as well as Finance Minister's Orders, special instructions and any other applicable laws.
    2. Pursuant to section 53 of the FMAA, the Commissioner has delegated powers and functions to a limited number of ATO officials, enabling them to approve indemnities to insolvency practitioners. Such delegations impose strict monetary limits.
    3. Pursuant to section 52 of the FMAA, the Commissioner has given written instructions to ATO officials in the form of Chief Executive's Instructions (CEIs) which all ATO officers must comply with (discussed further below).
    4. Section 14 of the FMAA provides that misapplication or improper use or disposal of public money by a Commonwealth official could result in a penalty of up to seven years' imprisonment.
    5. Section 15 of the FMAA provides that if a loss of public money occurs and that loss was caused or contributed to by misconduct or by deliberate or serious disregard for reasonable standards of care by a Commonwealth official, then that official could be held liable to pay to the Commonwealth the amount equal to the loss.
  2. The Financial Management and Accountability Regulations 1997 (FMAR). In particular:
    1. Regulation 9 of the FMAR prohibits the approval of a spending proposal unless the approving official is satisfied, after making reasonable enquiries, that giving effect to the spending proposal will be a proper use of Commonwealth resources within the meaning of section 44 of the FMAA.
    2. Regulation 10 of the FMAR prohibits the approval of a spending proposal where the appropriation of money is not authorised pursuant to an existing law or a proposed law that is before parliament, unless the Finance Minister has given written authorisation for the approval. This means that, subject to any delegations or other approved rules issued by the Finance Minister, where a spending proposal will or could result in Commonwealth resources being expended in a future financial year, and where there is not an existing Appropriation Act in place or being proposed before parliament, then only the Finance Minister can give written authorisation for the approval of the spending proposal.
    3. Regulation 13 of the FMAR prohibits the entering into of a contract, agreement or arrangement under which public money is or may become payable, unless approved pursuant to FMAR Regulation 9 and, if necessary, authorised first pursuant to FMAR Regulation 10.
    4. Regulation 24 of the FMAR provides for the Finance Minister to delegate any of their powers and functions under the FMAR to a Commonwealth official. FMAR Regulation 26 provides that a Chief Executive of an agency may delegate to a Commonwealth official any of the Chief Executive's powers or functions under the FMAR, including powers or functions delegated to the Chief Executive by the Finance Minister. In exercising powers and functions given under any of the above delegations, the delegated official must comply with any directions given.
  3. CEIs issued by the Commissioner pursuant to section 52 of the FMAA and Regulation 6 of the FMAR. In particular:

(a) Regulation 6 of the FMAR authorises the Chief Executive of an agency to give instructions to officials in that agency on any matter necessary or convenient for carrying out or giving effect to the FMAA or the FMAR, in particular any matters including making commitments to spend public money. CEIs are issued to promote and ensure adequate accountability of the proper use and management of public money, public property and other government resources.

(b) CEIs which the Commissioner has issued relative to the spending of Commonwealth resources include Spending approvals, Payments made by the ATO and Managing our financial responsibilities. All ATO officers and any person who performs a financial task on behalf of the ATO must comply with these CEIs. These documents include important factors for all ATO officers and delegated officials to consider, including:

  • All spending decisions must make efficient, effective, economical and ethical use of Commonwealth (government) resources and aim to deliver value for money.
  • The use of public resources must be consistent with relevant legislation and government policies.
  • The Commissioner and all ATO officials are accountable to the government and the public for how those resources are used. Every spending decision must be transparent and able to withstand external scrutiny.
  • Delegated approving officials are personally responsible and accountable for the decisions they make in approving spending proposals.
  • Spending proposals can only be approved if there are sufficient funds available in the budget to commit to that expenditure.
  • Spending proposals which involve or may involve the spending of resources in a future financial year have significant and separate approval processes.
  • A proposal to spend public money must be approved by a delegated official before a contract, agreement or arrangement can be entered into.
  1. Department of Finance (DoF)

The DoF has issued numerous documents which provide assistance and guidance to Australian government departments in relation to managing their legal and policy obligations relating to the commitment and spending of government resources. Some of these publications, which are freely available on the Department of FinanceExternal Link website, include:

  1. Finance Circular (FC) 2003/02, together with Financial Management Guidance (FMG) No.6, Guidelines for Issuing and Managing Indemnities, Guarantees, Warranties and Letters of Comfort. While this FC and FMG primarily apply to Commonwealth procurement processes, the DCT still has regard for these publications when providing indemnities to insolvency practitioners, given the similarities in respect of risk, etc.
  2. FC 2011/01, Commitments to spend public money (FMA Regulations 7 to 12)
  3. Financial Management and Accountability (Finance Minister to Chief Executives) Delegation 2010 (as amended). In particular, Part 1 of Schedule 2 sets out the delegations and directions given by the Minister for Finance and Deregulation to Commonwealth Agency Chief Executives in respect to FMAR Regulation 10, being approval of spending proposals for future financial years.

There are significant and strict legal and policy obligations imposed on Commonwealth officials who are delegated to approve spending proposals and commit Commonwealth/public resources. When an insolvency practitioner seeks an indemnity from the DCT sufficient information must be provided to enable the DCT (through their delegated officials) to make an informed and justifiable decision, which complies with all the necessary legal and policy obligations and is able to withstand external scrutiny. If the necessary information is not provided, the DCT will reject the indemnity request.

Due to these requirements, the decision-making process can take considerable time and any indemnity request should be made as soon as the need is identified.

Last modified: 31 Mar 2016QC 43951