Part 3: Management and Accountability


Governance of the AOFM

The AOFM’s governance arrangements enable an efficient and effective delivery of business objectives. Key elements include:

  • corporate and tactical business planning processes,
  • enterprise-wide risk management, assurance and compliance activities that are oversighted by an Audit Committee chaired by an independent member,
  • performance frameworks that facilitate on-going monitoring and review, and
  • delegations, instructions and internal guidance regarding powers and duties to ensure adherence with relevant legislation, regulations, and policies.

Overview of accountabilities

The AOFM is part of the Treasury portfolio. It is accountable to the Secretary to the Treasury and to the Treasurer, and through the Treasurer to the Parliament. As a listed entity under the PGPA Act the AOFM’s CEO is accountable for the management and performance of the AOFM, namely with respect to the implementation of debt management and investment policies. This also extends to matters such as the maintenance of accounts and records, management of risks and compliance with legislation and government policy.

The Secretary to the Treasury is responsible for advising the Treasurer on government policy relating to debt management and investment activities. In order to undertake the required functions of the AOFM, the CEO is delegated powers and authorisations by the Treasurer and the Secretary to the Treasury for debt creation and issuance, investment, and portfolio management.

The AOFM’s corporate plan, policies, and codes of conduct mirror AOFM values and these reflect high standards of integrity and accountability. Activities are designed to meet the requirements of legislative and regulatory frameworks, as well as the codes and practices generally expected of financial market participants.

The AOFM meets an important part of its accountability to the Secretary of the Treasury through the annual (pre-Budget) provision of a comprehensive debt portfolio management strategy that focuses on the outlook for issuance (in the context of the financing task), appropriate AGS market development aspirations (such as yield curve extensions), planned cash portfolio management parameters, and planned bond buybacks. This strategy is formalised after the release of the Budget through an annual remit, with the Treasurer approving the scope of planned borrowing on behalf of the government for the Budget year ahead.

Committees

Executive Group

The AOFM Executive Group leads the agency’s continuing development in accordance with its purpose and objectives. The Executive Group assists and supports the CEO in fulfilling his responsibilities to manage the AOFM (in particular, as the accountable authority under the PGPA Act, and pursuant to other Commonwealth legislation). Its activities include: the setting and tracking of strategic plans and performance targets, reviewing the AOFM’s risk profile and setting of risk appetite, monitoring financial and compliance performance, and building capability and capacity to support high levels of performance. The Executive Group, which is chaired by the CEO and comprises the AOFM’s senior executives, meets monthly.

Audit Committee

The Audit Committee monitors and reviews the AOFM’s governance, enterprise risk management, internal control, and financial reporting arrangements. It receives periodic briefings from AOFM management on changes to the business and risk profiles. It oversees the AOFM’s assurance program and receives reports, indicator dashboards and briefings from AOFM business units and internal auditors. This information, together with relevant observations from the external auditor, assists the Audit Committee to form a view on the AOFM’s financial and performance reporting, compliance with its obligations, and the on-going effectiveness of AOFM risk and control frameworks.

Key activities of the Committee during 2017–18 included:

  • advice on the preparation and review of the AOFM’s financial statements,
  • considering developments in the AOFM’s risk profile and compliance performance, as reported through quarterly risk and assurance (including audit) reports,
  • reviewing the adequacy of fraud control strategies and monitoring activities,
  • monitoring the progress of: major corporate projects, initiatives to achieve the AOFM’s workforce planning outcomes, and the implementation of audit recommendations, and
  • reviewing the AOFM’s reporting on performance obligations, in line with the annual reporting requirement under the PGPA Act, including its approach to monitoring key performance indicators, and how these will be incorporated into the Annual Performance Statement.

The Committee met four times during 2017–18 at the AOFM’s office in Canberra. Member attendance at 2017–18 meetings is provided in Table 1. The Audit Committee also conducted closed sessions with the internal auditors and external auditors during the year.

Table 1: Audit Committee meetings for 2017–18

Audit Committee members

Eligible meetings

Attendance

Will Laurie, Independent Member, Chair

4

4

David Lawler, Independent Member (a)

1

1

Stephen Knight, Independent Member

4

4

Jan Harris, Independent Member (b)

2

2

Samantha Montenegro, Chief Risk and Compliance Officer, AOFM

4

4


(a) Mr David Lawler concluded his tenure as an independent member on 31 August 2017. Mr Lawler’s final meeting as an independent member was held on 24 August 2017.

(b) Ms Jan Harris was appointed to this position on 28 November 2017, which had been vacant for the 22 November 2017 meeting as a result of the conclusion of Mr Lawler’s tenure. Ms Harris’ first meeting was on 20 March 2018.

External observers at Audit Committee meetings included the ANAO and its outsourced provider (KPMG), and the AOFM’s internal auditor (PricewaterhouseCoopers). The AOFM CEO regularly attends meetings as an observer.

Other management committees

Cash Management Meeting

The Cash Management Meeting is held each week to review the government’s cash portfolio position and short to medium term cash flow projections, including expected funding needs and emerging risks to the cash portfolio profile. The meeting is chaired by the CEO, and attended by the Head of Funding and Liquidity and other front office staff.

Security Committee

The Security Committee meets quarterly and oversights security management within the AOFM. Its membership comprises the CEO (as Chair), Chief Risk and Compliance Officer, Agency Security Advisor, and IT Security Advisor. The head of the Treasury Security Team is also invited to attend ex officio to assist in security harmonisation.

Portfolio Strategy Meeting

Portfolio Strategy Meetings (PSM) advise the CEO on operational debt portfolio and financial risk management issues, and review deal execution and general financial market conditions. Membership during 2017–18 included the CEO, Head of Global Markets and Business Strategy, Head of Portfolio Strategy and Research, Head of Funding and Liquidity and Head of Investor Relations, with other senior staff holding relevant functional responsibilities invited as observers and contributors to topical papers. Meetings are generally convened on a quarterly basis.

Management of fraud risk

The AOFM has a low risk appetite for fraud, and has taken comprehensive steps to prevent the occurrence of fraud. These include the application of a fraud control plan, and systems to ensure the regular identification, assessment and treatment of fraud risk vulnerabilities. The AOFM’s approach to fraud risk management complies with the PGPA Act and Rule and the Commonwealth Fraud Control Framework.

For 2017–18 the AOFM did not identify any instance of fraud or suspected fraud.

Enterprise risk

Risk management is integral to the AOFM’s activities and is viewed internally as the responsibility of all staff. The Executive Group, in a leadership capacity, fosters a strong risk aware culture and supports staff in judging appropriate risk in which to engage. The risk and assurance functions guide staff on the design, implementation and effective operation of appropriate risk treatments and controls.

The enterprise risk management framework provides for the active and transparent management of uncertainty (threats and opportunities). Key reflection points are provided quarterly (at Executive Group meetings), and these are an established feature of annual corporate planning activities. Risk assessments are used as key inputs to strategy development and decisions on operational activities. The enterprise risk management framework captures information that is used to indicate emerging matters of note and key risks to be managed and monitored. This approach is used at both enterprise (‘top-down’, outward focussed) and business unit (‘bottom-up’, inward focussed) levels. Staff understand that risks are to be managed in line with the AOFM’s risk appetite and tolerance statements.

The AOFM’s enterprise risk management framework is consistent with the Commonwealth Risk Management Policy. In 2017–18, the framework was assessed at an ‘advanced’ rating of maturity under the Comcover Benchmarking Program, consistent with the AOFM’s target level of maturity.

The AOFM’s enterprise risks are classified into three broad categories:

  • Strategic risks: opportunities and exposures that impact on the AOFM’s medium to long term objectives. These risks are monitored and reviewed by the Executive Group on a semi-annual basis, with a comprehensive review of the context in which the AOFM operates undertaken on an annual basis as part of the corporate planning process,
  • Portfolio risks: impact on portfolio management, investment and debt issuance activities, these risks are managed pursuant to the AOFM’s financial risk management framework, and
  • Operational risks: relate to business as usual and corporate activities of the AOFM, and generally deal with matters of compliance, or the availability, integrity and/or actions of staff, providers, systems and/or internal processes. These risks are reviewed at least on a quarterly basis.

The AOFM’s most significant risks typically arise from uncertainty relating to external factors (most notably the potential for sudden changes in economic or financial market conditions), or major changes to business activities. Key entity risks under management include the:

  • potential negative impact of market trends or disruptive technologies on the successful issuance of AGS necessary to meet funding requirements,
  • ongoing management of actions and messaging by the AOFM to maintain AGS investor confidence, as well as a positive view of the AGS market, and
  • potential disruptions to third party suppliers or failure of internal systems and controls, which may negatively impact the AOFM’s ability to deliver outcomes in accordance with its objectives.

Business continuity arrangements

The AOFM has a comprehensive business continuity plan to ensure that its critical functions can continue in the event of a major short-term or prolonged disruption. These arrangements include the provision of full back-up of IT and related business services that can be implemented when the AOFM’s day-to-day business systems or office accommodation are not accessible, or when AOFM staff are not available to perform key tasks.

Business continuity plans were updated and tested in 2017–18 to ensure staff familiarity with processes and procedures in the event of a business disruption. Business continuity arrangements are supplemented by a crisis management framework to enhance business resiliency

Assurance

The AOFM’s enterprise risk framework is complemented by an assurance framework that is used to monitor the operation and effectiveness of key controls. The framework is designed to meet the needs of the AOFM and is modelled on better practice industry standards.

The AOFM’s compliance with external obligations, internal controls, and its business procedures is monitored through a co-sourced arrangement, with in-house assurance and compliance activities supplemented by the use of independent internal audit services.

In 2017–18, assurance and compliance activities provided structured assurance on the effectiveness and efficiency of the AOFM’s governance arrangements, risk management and internal control environment. Key activities undertaken in 2017–18 included:

  • completion of the annual assurance testing program to assess operating effectiveness of key controls and compliance with key legislative and policy requirements.
  • project assurance for the AOFM’s Treasury system upgrade,
  • maintenance and performance of the AOFM’s approach to obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006, and
  • completion of an annual fraud control testing program.

Information and output derived from the enterprise risk and assurance frameworks support the CEO in meeting the obligation to maintain a system of risk management and internal control pursuant to section 16 of the PGPA Act.

Internal audit

The AOFM’s internal audit service provider is PricewaterhouseCoopers. Internal audit coverage is determined using a methodology aligned with professional internal audit standards, with due regard to the AOFM’s business and risk contexts. The Audit Committee endorses the internal audit strategy, for CEO approval.

The internal auditor completed four reviews in 2017–18:

  • identification of key cloud-based applications used by the AOFM and an assessment as to the effectiveness of processes in place to monitor data-flows from AOFM systems to a cloud-based service.
  • assessing the end-to-end process and controls supporting the debt issuance, confirmation, settlement and buyback activities,
  • project assurance for the AOFM’s Treasury system upgrade, and
  • a post implementation review of the AOFM’s contract execution for the fitout of its new premises.

Two reviews remain outstanding from the 2017–18 strategic internal audit plan, and were in progress as at 30 June 2018:

  • assessing the AOFM’s compliance with the Protective Security Policy Framework (PSPF), and
  • a review of the AOFM’s approach to key supplier risk management.

The internal auditor also completed a management initiated review: assessing the design and integrity of the AOFM’s AGS turnover survey spreadsheet tools.

In its annual report on internal controls, the internal auditor concluded that AOFM continues to have a mature control environment (demonstrated by the nature and type of findings reported). Audit recommendations were aimed at enhancing the efficiency of the current control environment or clarifying current settings. At 30 June 2018, three internal audit recommendations remained outstanding and these are being addressed in accordance with agreed timelines.

Judicial decisions

In 2017–18, no matters relating to the AOFM were the subject of judicial proceedings, administrative tribunal hearings or consideration by the Commonwealth Ombudsman.

External reports on agency operations

There were no reports in 2017–18 on the operations of the AOFM by the Auditor-General (other than the report on financial statements), a Parliamentary committee, or the Commonwealth Ombudsman.

Management of human resources

Workforce planning

The AOFM Workforce Plan 2014-2018 concluded at the end of the reporting period. Actions identified in the Plan relating to organisational resilience are ongoing. A new workforce plan attuned to AOFM’s strategic context is being developed.

Enterprise Agreement

The AOFM Enterprise Agreement 2015-2018 was approved by the Fair Work Commission and came into effect on 17 July 2015 and continues to apply. The CEO authorised adjustments to AOFM pay rates via a determination under subsection 24(1) of the Public Service Act 1999 in November 2015. One individual flexibility arrangement was made under clause 1.5 of the Agreement during 2017–18.

Training and development

In 2017–18, all staff participated in some form of training. This included compliance training, leadership programmes, financial market related courses, an internal seminar series, and individual professional development activities. Payments to external providers for training and development during the period were on average $4,260 per full-time equivalent employee (FTE).

The AOFM workforce

As at 30 June 2018, AOFM employed 36.6 FTE. Table 2 shows the paid head count of the workforce by broadband classification as at the beginning and end of 2017–18.

Table 2: Operative and paid inoperative staff as at 30 June 2018 and 2017

Ongoing

Non-ongoing

Full-time

Part-time

Full-time

Part-time

Classification

Male

Female

Male

Female

Male

Female

Male

Female

Total

2018

AOFM1

2

2

AOFM2

19

5

3

27

AOFM3

5

2

7

AOFM4

1

1

CEO

1

1

Total

26

9

3

38

2017

AOFM1

2

2

AOFM2

18

8

3

29

AOFM3

5

1

6

AOFM4

1

1

CEO

1

1

Total

25

11

3

39

Note: AOFM broadband classifications are linked to Australian Public Service classifications as follows: AOFM1 corresponds to APS1 to APS4, AOFM2 corresponds to APS5 to EL1, AOFM3 corresponds to EL2 and AOFM4 covers higher level EL2.

During the first half of the reporting period, one position was staffed by AOFM to support knowledge transfer and technical capacity building in sovereign debt management in the Solomon Islands. This was arranged under the Solomon Islands Economic and Public Sector Governance Program. One AOFM staff member was placed in the Budget Policy Division of Treasury in this period as well. In the second half of the reporting period one employee was seconded to the Infrastructure and Project Financing Agency and another to Treasury as the manager of the Risk, Governance and Appointments section.

Ninety per cent of AOFM staff have degree qualifications, with 28 per cent holding higher degrees and 28 per cent holding double degrees. Thirty-eight per cent have professional qualifications related to the technical aspects of their role with the AOFM.

Employees who identify as indigenous

The AOFM does not have any staff who identify as indigenous.

Changes to senior management

There were no permanent changes to senior management during 2017–18.

Other staffing changes

One ongoing employee was recruited during 2017–18.

There was one ongoing staff departure during the year.

Staff departures represented 2.7 per cent of average staffing levels in 2017–18 (19.0 per cent in 2016–17).

The retention rate for 2017–18 was 97.4 per cent, with an average annual retention rate of 89.6 per cent over the last five years.

Employment arrangements

All non-SES staff had terms and conditions set during 2017–18 by the AOFM Enterprise Agreement 2015-2018 and a determination made under subsection 24(1) of the Public Service Act 1999 by the CEO.

The CEO has his terms and conditions set by the Secretary through a determination made under subsection 24(1) of the Public Service Act 1999.

Remuneration

Pay rates as at 30 June 2018 are shown in Table 3. These rates were set in accordance with the AOFM Enterprise Agreement 2015-2018 and a determination made under subsection 24(1) of the Public Service Act 1999.

Table 3: AOFM salary ranges

30 June 2018

Band low

Band high

Classification

$

$

AOFM1

42,356

77,407

AOFM2

75,333

153,548

AOFM3

178,995

223,744

AOFM4

240,740

300,925

Remuneration within the range for the classification depends on individual performance ratings. Performance appraisals balance what is achieved (outputs) with how those results are obtained (behaviours). Performance-linked bonuses are not available.

Non-salary benefits provided to Australia-based staff principally comprise superannuation and support for professional development through study assistance, short courses and payment of job-relevant professional society membership fees. A mobile phone, laptop, or other mobile device may be provided where there is a business need. Employees on long-term deployment overseas are provided with housing, utilities, security, health and related ancillary services. Remuneration for key management personnel is reported in Note A of Part 4: Financial Statements.

Disability reporting mechanism

Since 1994, non-corporate Commonwealth entities have reported on their performance as policy adviser, purchaser, employer, regulator, and provider under the Commonwealth Disability Strategy. In 2007-08, reporting on the employer role was transferred to the Australian Public Service Commission’s State of the Service reports and the APS Statistical Bulletin. These reports are available at www.apsc.gov.au. From 2010-11, entities have no longer been required to report on these functions.

The Commonwealth Disability Strategy has been overtaken by the National Disability Strategy 2010-2020, which sets out a 10-year national policy framework to improve the lives of people with disability, promote participation and create a more inclusive society. A high level two-yearly report will track progress against each of the six outcome areas of the Strategy and present a picture of how people with disability are faring. The first of these reports was published in 2014, and can be found at www.dss.gov.au.

Work health and safety

Health, wellbeing and safety services are provided by the Treasury under a Memorandum of Understanding. The AOFM has one Health and Safety Representative who assists staff in accordance with the Work Health and Safety Act 2011.

Monitoring the emergence of notable work health and safety issues is a standing agenda item at Executive Group meetings.

Flu vaccinations were made available to staff in 2017–18. There was an all-staff briefing on ergonomic issues relating to work practices and equipment use. Counselling and related support is available under an Employee Assistance Programme provided by Benestar Group. Additional online resources are provided to all staff to assist with safety, health and wellbeing promotion.

There were no compensable injury claims in 2017–18. There was one incident under section 37(5) which was notified to Comcare. The incident was investigated and no further action was required.

There have been no notices or investigations under Part 10 of the Work Health and Safety Act 2011.

Consultants

During 2017–18, two new consultancy contracts were entered into with total actual expenditure of $13,200. In addition, two ongoing consultancy contracts were active during 2017–18, involving total actual expenditure of $261,715. This is summarised in Table 4.

Annual reports contain information about actual expenditure on contracts for consultancies. Information on the value of contracts and consultancies is available on the AusTender website at:www.tenders.gov.au.

The AOFM engages consultants where it requires specialist expertise or when independent research, review or assessment is required.

Prior to engaging consultants, the AOFM takes into account the skills, experience and resources required for the task, the skills available internally, and the cost-effectiveness of engaging external expertise. The decision to engage a consultant is made in accordance with the PGPA Act and related rules, including the Commonwealth Procurement Rules (CPRs), and relevant internal policies.

Table 4: Consultancy contracts

2014-15

2015-16

2016–17

2017–18

Number of consultancy contracts

New contracts

8

9

1

2

Ongoing contracts

4

5

3

2

Expenditure (including GST)

New contracts

$126,851

$211,337

$14,614

$13,200

Ongoing contracts

$583,875

$222,974

$221,822

$261,715

Purchasing

The AOFM’s purchasing activities are consistent with, and reflect the principles of, the Commonwealth Procurement Rules (CPRs). These rules are applied to the AOFM’s activities through the Accountable Authority Instructions and supporting internal policies and procedures.

The AOFM’s Procurement Plan is published annually and available from the AusTender website: www.tenders.gov.au. The plan is updated when circumstances change.

ANAO access clauses and exempt contracts

Five contracts in excess of $100,000 were entered into during the reporting period that did not provide for the Auditor-General to have access to the contractor’s premises.

The first contract was for the syndicated issuance of $2.3 billion of Australian Government Treasury Bonds (a June 2039 maturity) in July 2017. The AOFM appointed Bank of America Merrill Lynch, Westpac Institutional Bank and UBS AG (Australia Branch) to act as managers for the issue.

The second contract was for the syndicated issuance of $3 billion of Australian Government Treasury Indexed Bonds (a November 2027 maturity) in August 2017. The AOFM appointed Citi, UBS AG (Australia Branch), Westpac Institutional Bank and Deutsche Bank AG to act as managers for the issue.

The third contract was for the syndicated issuance of $2.1 billion of Australian Government Treasury Bonds (a March 2047 maturity) in October 2017. The AOFM appointed Citi, Deutsche Bank AG and Toronto Dominion Australia Limited to act as managers for the issue.

The fourth contract was for the syndicated issuance of $9.6 billion of Australian Government Treasury Bonds (a November 2029 maturity) in January 2018. The AOFM appointed Citi, Commonwealth Bank of Australia, Deutsche Bank AG and UBS AG (Australia Branch) to act as managers for the issue.

The fifth contract was for the syndicated issuance of $1.7 billion of Australian Government Treasury Bonds (a June 2039 maturity) in May 2018. The AOFM appointed ANZ, Commonwealth Bank of Australia and National Australia Bank to act as managers for the issue.

ANAO access clauses were not included in the contracts as the AOFM maintains all relevant information in relation to the contracted services. Under these contracts, $30.86 million (including GST) was paid.

No contract or standing offer has been exempted from being published in the Purchasing and Disposals Gazette on the basis that it would disclose exempt matters under the Freedom of Information Act 1982.

Procurement initiatives to support small business

The AOFM supports small business participation in the Commonwealth Government procurement market. Small and Medium Enterprises (SME) and Small Enterprise participation statistics are available on the Department of Finance’s website.

www.finance.gov.au/procurement/statistics-on-commonwealth-purchasing-contracts/.

Consistent with paragraph 5.4 of the CPRs, the AOFM’s procurement practices provide appropriate opportunities for SMEs to compete and ensure that SMEs are not unfairly discriminated against.

The AOFM recognises the importance of ensuring that small businesses are paid on time. The results of the Survey of Australian Government Payments to Small Business are available on the Treasury’s website: www.treasury.gov.au

Last updated: 24 October 2018