Australian implementation guidance for not-for-profit public sector entities (AASB124_07-15_COMPmar20_07-21)

Example 1

Minister A is the Australian Minister for Education and Training.  Minister A administers their portfolio through the Department of Education and Training (the Department), a controlled entity of the Australian Government.  Minister A is accountable to Parliament for the actions of the Department.  As part of the portfolio, the Minister is responsible for:

•               education policy and programs including schools, vocational, higher education and Indigenous education, but excluding migrant adult education;

•               education and training transitions policy and programs;

•               science awareness programs in schools;

•               training, including apprenticeships and training services;

•               policy, co-ordination and support for education exports and services; and

•               income support policies and programs for students and apprentices.

Minister B is the Assistant Minister for Education and Training.  Assistant Ministers are appointed to assist Ministers in prioritising work, to provide a training experience for future Ministers, to facilitate public access to the Ministers and to enable the bureaucracy to have an ongoing point of contact so that parliamentary correspondence and other parliamentary administrative issues are neither overlooked nor downgraded.  As an Assistant Minister, Minister B cannot:

•               sit as a Minister in Cabinet;

•               attend a meeting of the Executive Council or sign Executive Council Minutes on behalf of the Minister;

•               perform any duties in Parliament on behalf of the Minister including     answering questions without notice, presenting Ministerial Statements, tabling documents and introducing legislation; or

•               appear before a Committee of Parliament on behalf of the Minister.

The Department is responsible for delivering national policies and programs that help Australians access quality early childhood education, school education, higher education, vocational education and training, international education and research.  The Department is headed by the Secretary of the Department, who reports to the Australian Minister for Education and Training.  At the same time, the Secretary also makes reports to the Assistant Minister for Education and Training.  The Secretary of the Department, and two Associate Secretaries and a Deputy Secretary within the Department, operate as the executive management team responsible for the day-to-day delivery of the Department’s services.

Based on the facts and circumstances above, Minister A, the Secretary of the Department, and the two Associate Secretaries and Deputy Secretary are members of the key management personnel of the Department as they have the authority and responsibility for planning, directing and controlling the activities of the entity.  Minister A’s role is akin to that of a director in a company, as the Minister discharges their role and responsibilities regarding the Department and is ultimately responsible for the performance of the Department.  Minister B is not a member of the key management personnel of the Department as Minister B’s role supports that of the Minister, rather than having any authority and responsibility for planning, directing and controlling the activities of the Department in Minister B’s own right.

Example 2

The Cabinet is a group within the Australian Government (the Commonwealth of Australia) comprising the Prime Minister and a number of senior Ministers.  All current Ministers are part of the Executive Council, but not all Ministers are also part of Cabinet.  The Governor-General is the chair of the Executive Council. 

Minister A, the Australian Minister for Education and Training, is part of Cabinet.  Minister B, the Assistant Minister for Education and Training is not part of Cabinet but is part of the Executive Council.  Minister D, the Minister for Justice, is also not part of Cabinet but is part of the Executive Council. 

Cabinet’s role is to direct the overall government policy and make decisions about national issues.  In Cabinet meetings, Ministers also present bills from their government departments.  Cabinet examines these bills, and recommends whether bills should proceed to Parliament or changes should be made.  A Minister who is not part of Cabinet may be invited to a Cabinet meeting to speak about developments within their portfolio.  The Cabinet is accountable to Parliament for the running of the government. 

The Executive Council is a constitutional body charged with advising the Governor-General.  Legally, members of the Executive Council are chosen by the Governor-General; however, in practice, all current Ministers are part of the Executive Council.  The Executive Council acts as a formal ratification body for the decisions of Cabinet, and is required to undertake a range of functions including making proclamations, regulations and ordinances as delegated by various Acts of Parliament, issuing writs for elections, appointing public servants and recommending the appointment of judges. 

Section 61 of the Australian Constitution provides that “The executive power of the Commonwealth is vested in the Queen and is exercisable by the Governor-General as the Queen’s representative, and extends to the execution and maintenance of this Constitution, and of the laws of the Commonwealth”.  However, the Governor-General is bound by convention to follow the advice of the Executive Council.

Based on the facts and circumstances above, Minister A is a member of the key management personnel of the Australian Government.  As part of Cabinet and having regard to Cabinet’s powers, Minister A has the authority and responsibility for planning, directing and controlling the activities of the Australian Government.  In addition, as a member of the key management personnel of the Australian Government, Minister A is also a related party of any entities controlled by the Australian Government, consistent with paragraph 9 of the Standard.

Minister B and Minister D are unlikely to be members of the key management personnel of the Australian Government as, although they are part of the Executive Council, they are outside the group of persons responsible for making decisions about the overall running of the government.  Further, in substance, neither the members of the Executive Council nor Governor-General have the authority and responsibility for directing and controlling the activities of the Australian Government, and accordingly, are not members of the key management personnel of the Australian Government reporting entity.

Example 3

University XYZ is a not-for-profit public sector entity established under an Act of the State Government.  The State Government has determined that it does not control the University. 

The governing body of the University is the University Council.  The University Council consists of 17 members, five of whom are appointed directly or indirectly by the State Minister for Education.  The Chair of the University Council is the Chancellor, who is the formal head of the University.  The Chancellor is responsible for ensuring the efficient operation of the University Council in the performance of its governance role, presiding at ceremonial occasions of the University and acting as a signatory to official statutory reports of the University. 

The Act specifies that the University Council’s responsibilities, powers and functions include:

•               approving the mission, strategic direction and annual budget and business plan of the University;

•               establishing policies (‘university statutes and regulations’) relating to the governance and operation of the University, including trusts and endowments, and research, development, consultancy, commercial activities and other services undertaken for commercial organisations or public bodies;

•               developing guidelines (if any) concerning the carrying out of commercial activities, finance and property matters, or any other related matter;

•               overseeing the management of the property, finances and business affairs of the University, such as risk management across the University, including its commercial activities;

•               any other powers and functions conferred on it by or under legislation or any university statute or regulation; and

•               the power to do anything else necessary or convenient to be done for or in connection with its powers and functions.

The University Council has a range of powers and functions that it can exercise directly, including the following:

•               appointing the Vice-Chancellor, who is the chief executive officer of the University and responsible for the conduct of the University’s affairs in all matters;

•               determining the composition of borrowings within the parameters set by the State Government;

•               approving the University’s budget for a financial year, incorporating total revenue and the planned revenue sources, including planning the mix between teaching, research and commercial activities, the fees and charges to apply to those activities, and the type and value of government grants desired;

•               determining the course mix and target student mix, such as vocational, undergraduate, graduate and executive courses, on-campus or distance learning, and local and international students;

•               appointing staff and determining their terms and conditions;

•               deciding whether to operate through multiple campuses and how to utilise the University’s infrastructure; and

•               making university regulations with respect to any matter relating to the University.

The University Council has delegated the day-to-day management responsibilities and other functions to the University’s executive and other senior staff in order to be able to focus on the broader policy and strategic issues.

The State Minister for Education has the following powers and functions as part of the Minister’s role in the State Government:

•               fixing the remuneration and fees to be paid to University Council members who are not full-time staff of the University or holders of statutory office;

•               approving (or vetoing) University statutes and guidelines made by the University Council;

•               declaring an activity to be a university commercial activity;

•               making interim guidelines concerning university commercial activities and finance and property matters – these apply unless replaced by University-submitted guidelines approved by the Minister;

•               in conjunction with the State Treasurer, approving the limits and conditions (eg security) for University borrowings;

•               approving (or vetoing) the disposal of land that was previously Crown land granted to the University;

•               requesting commercial and financial reports from the University;

•               referring a university commercial activity or any aspect thereof to the auditor-general for investigation; and

•               ensuring that the University complies with certain rights specified in State Government grants provided to the University – some of the grants are required to be repaid if not applied as specified.

Based on the facts and circumstances above, as the State Government has determined that it does not control the University, it is unlikely that the State Minister for Education, as the executor of the State Government’s powers, is a member of the key management personnel of the University, as the evaluation of control includes an assessment of the State Government’s ability to direct the activities that most significantly affect the University’s outcomes.  The State Minister’s powers and functions (provided to the position) may restrict the way in which the University operates, but do not of themselves give the State Minister authority and responsibility for the activities of the University.

Rather, based on the facts and circumstances above, it is the University Council (who are akin to a board of directors, with the Chancellor akin to a non-executive chairman) and the University’s executive and other senior staff who have the authority and responsibility for planning, directing and controlling the activities of the University.

The purpose of this Example is to assist entities with the identification of key management personnel of a not-for-profit public sector entity.  However, an entity should also consider whether the State Minister for Education, or the State Government, will otherwise meet the definition of a related party of the University (see paragraph 9 of the Standard).

Example 4

The LMN local government (the Council) is a local government entity created under a State’s Local Government Act (the Act) and is subject to a wide range of State Government regulatory powers.  The interest of the State Government in the activities of the Council is primarily to ensure that the general objectives set out in the Act are being achieved or furthered.  The State Government’s rights in respect of the Council are held primarily by the State Minister for Local Government.  These rights allow the State Government (via the State Minister for Local Government) to advise or guide the Council in its activities, or under particular circumstances, to intervene in the activities of the Council.

Minister X is the State Minister for Local Government.  The Minister administers their portfolio through the Local Government branch of the State Department of Transport, Planning and Local Infrastructure (the Department).  As part of the Minister’s role and responsibilities, Minister X is responsible for:

•               the scrutiny of councils, including municipal boundaries;

•               making recommendations for allocation of project grants to local governments for projects;

•               overseeing tendering processes for council services;

•               ensuring the concerns of local governments are communicated to the State Cabinet; and

•               the coordination of council community and infrastructure work at a State level.

The Council’s primary objective is to achieve the best outcomes for the local community over the long term.  The Council is empowered by the Act to do all things necessary and convenient for the achievement of its objectives and the performance of its functions, subject to any limitations under the Act or any other legislation.

The Council is administered by 10 councillors, who are elected directly by the local community in periodic elections.  The Council’s functions include raising revenue to fund its functions and activities, and planning for and providing services and facilities (including infrastructure) for the local community.  In carrying out its functions, the Council undertakes a wide range of activities including the imposition of rates and charges upon constituents, and the provision without charge of services such as parks and roads.  The day-to-day operations of the Council are carried out by council staff under the direction of its elected councillors. 

The State Government has determined that it does not control the Council. 

Based on the facts and circumstances above, Minister X is not a member of the key management personnel of the Council, as the Minister’s role does not extend to having the authority and responsibility for planning, directing and controlling the activities of the Council itself.  Having concluded that the State Government does not control the council, Minister X’s role as executor of the State Government’s powers and rights over the Council cannot of itself enable Minister X to meet the definition of key management personnel of the Council.  Rather, in this example, it is the councillors and senior council staff who have the authority and responsibility for the activities of the Council (similar to a board of directors and senior management of a company).

The purpose of this Example is to assist entities with the identification of key management personnel of a not-for-profit public sector entity.  However, an entity should also consider whether Minister X, or the State Government, will otherwise meet the definition of a related party of the Council (see paragraph 9 of the Standard).

Example 5

Minister E, the State Minister for Education, Minister F, the State Minister for Children and Early Childhood, and Minister G, the State Minister for Higher Education and Skills, administer their portfolios wholly through the State Department of Education (the Department), a controlled entity of the State Government. 

The day-to-day operations of the Department are managed by an Executive Board comprising the Secretary of the Department and the head of each of the Department’s divisions.  The Executive Board is the governance and decision-making body for the Department accountable for the:

•               strategic direction and leadership of the Department;

•               management of the Department;

•               decision-making and risk management;

•               monitoring and evaluation of the Department’s activities; and

•               compliance and stakeholder management.

The Department reports to the three Ministers, separately or jointly as appropriate to the nature of the Ministers’ portfolio.  The Ministers are jointly accountable to Parliament for the actions of the Department. 

Based on the facts and circumstances above, Minister E, Minister F and Minister G, and the members of the Executive Board are members of the key management personnel of the Department as they have the authority and responsibility for planning, directing and controlling the activities of the Department.  The Ministers’ roles are akin to that of directors in a company, even though each has responsibility only to the extent of their respective portfolios, as they discharge their roles and responsibilities regarding the Department and are ultimately responsible for the performance of the Department.

Example 6

Statutory authority SLA is a statutory authority of the State Government tasked with providing legal information, advice and representation to financially disadvantaged residents of the State.  As a statutory authority, SLA was established under its own enabling legislation, which sets out its functions, powers and responsibilities.  Its remit is such that it generally operates independently of any governmental direction or influence.

SLA is funded by the State Government to undertake state law matters.  The State Government may specify areas to which certain of the funds granted should be allocated.  SLA is a controlled entity of the State Government.

The execution and authority for the day-to-day operations of SLA are the responsibility of its executive management team, who report to the Board of SLA.  The Board is the statutory authority’s governing body and is responsible for managing SLA and ensuring that its objectives are achieved.  The Board is responsible for deciding SLA’s priorities and strategies, leading its policy direction and ensuring its sound and prudent financial management.  Board members are appointed by the State Governor in Council, on advice of the State Minister for Justice.

SLA is accountable to the State Government for the delivery of legal assistance services.  As a statutory authority, the Board of SLA reports to the State Minister for Justice, who is responsible to Parliament for the oversight of statutory authorities within the Minister’s portfolio. 

SLA’s enabling legislation provides that the Board must:

•              if asked by the State Minister for Justice, give the Minister a report on any issue relevant to its functions, other than about legal assistance for a particular person; and

•               act upon a written direction given by the State Minister for Justice about the performance of SLA’s functions or exercise of its powers, and its policies, priorities or guidelines, including priorities in legal assistance funding.  The direction cannot be about giving legal assistance to a particular person.

While SLA generally operates independently of any governmental direction or influence, from time to time, the State Minister for Justice has requested various reports and required SLA to act as directed. 

Based on the facts and circumstances above, the Board and executive management team of SLA are members of the key management personnel of the entity, as they ultimately have the authority and responsibility for planning, directing and controlling the activities of the entity.  In this fact pattern, the State Minister for Justice is also a member of the key management personnel of SLA, as the powers vested in the Minister’s role also give the Minister authority and responsibility for planning, directing and controlling the activities of the entity, as SLA is required to act in accordance with the Minister’s written directions (which may relate to SLA’s execution of its remit).

The purpose of this Example is to assist entities with the identification of key management personnel of a not-for-profit public sector entity.  However, consideration should also be given to whether the State Government is a related party of SLA (see paragraph 9 of the Standard).

Example 7

Councillor P is a member of the key management personnel of the LMN local government (the Council).  The Council’s functions include raising revenue to fund its functions and activities, and planning for and providing services and facilities (including infrastructure) for the local community.  In carrying out its functions, the Council undertakes a wide range of activities including the imposition of rates and charges upon constituents, and the provision without charge of services such as parks and roads.

Councillor P is a ratepayer residing within the Council’s constituency.  As such, Councillor P takes advantage of the availability of free public access to local parks and libraries.  Councillor P also used the swimming pool at the Council’s Recreation Centre twice during the financial year, paying the casual entry fee applicable to the general public each time.  The recreation centre has approximately 20,000 visitors each financial year.

All of the transactions described above between the Council and Councillor P are related party transactions of the Council considered for disclosure in the Council’s general purpose financial statements.  Based on the facts and circumstances described, the Council may determine that these transactions are unlikely to influence the decisions that users of the Council’s financial statements make having regard to both the extent of the transactions, and that the transactions have occurred between the Council and Councillor P within a public service provider/ taxpayer relationship.

Example 8

Minister Z, the State Minister for Planning, has responsibility for a range of functions and, in certain circumstances, has the power to intervene on matters associated with planning and heritage processes.  Minister Z is a member of the key management personnel of State Government H. 

Entity MED is a controlled entity of State Government H, and operates within the State Health sector.  Entity MED is currently seeking State development approval for a potentially contentious new building.

Around this time, Entity MED enters into a contract with Entity STU, an entity wholly-owned and controlled by a close member of Minister Z’s family for Entity STU to provide cleaning services at various current and future Entity MED locations, including the new building when completed.  The cleaning contract was won by Entity STU in an open tender.  Minister Z has declared information about the contract to provide cleaning services to Cabinet and it is included as part of the Minister’s Register of Members’ Interests.  During the reporting period, Entity STU rendered services of $50,000 to Entity MED.  No amounts remain outstanding at Entity STU’s reporting date.  Entity MED assesses the cleaning services rendered to be a material component of its total operating expenses. 

Entity STU is a related party of Entity MED in accordance with the definition of a related party in paragraph 9 of the Standard.  The provision of $50,000 cleaning services by Entity STU to Entity MED described above is a related party transaction of Entity MED as there has been a transfer of services and resources between Entity MED and Entity STU.  Based on the facts and circumstances described, management of Entity MED may determine that information about the transaction is material for disclosure in its general purpose financial statements as there has been a transfer of resources occurring other than as a result of a public service provider/ taxpayer relationship between related parties and the amount of the transaction is material to Entity MED.

The provision of $50,000 cleaning services by Entity STU to Entity MED described above is also a related party transaction of State Government H as Minister Z is a member of the key management personnel of State Government H and Entity MED is a controlled entity of State Government H.  State Government H should separately assess whether the related party transaction is material for disclosure in the whole-of-government financial statements.