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Part 3: Management and Accountability

Governance of the AOFM

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

  • corporate and tactical business planning processes;
  • enterprise-wide risk management, assurance and compliance activities with oversight by an independently chaired Audit Committee;
  • performance frameworks for 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. 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, the 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. For the purposes of operational efficiency the AOFM 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 reflect AOFM values and the high standards of integrity and accountability expected of staff. 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 (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 reviewed annually and then 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 (comprising the CEO and business unit heads) leads the agency 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). The Group’s activities include: setting and tracking strategic plans and performance targets, reviewing the AOFM’s risk profile and setting risk appetite, monitoring financial and compliance performance, and building the capability and capacity to support high levels of performance.

Audit Committee

The Audit Committee monitors and reviews the AOFM’s governance, enterprise risk management, internal control, and financial and performance reporting arrangements. It receives periodic internal briefings on changes to the business and risk profiles, 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 appropriateness of 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 2018–19 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 AOFM reporting on performance obligations in line with the PGPA Act requirement, and monitoring AOFM key performance indicators and how these will be incorporated into its Annual Performance Statement.

The Committee met four times during 2018–19 at the AOFM’s office in Canberra. Member attendance at 2018–19 meetings is provided in Table 5. The Audit Committee also conducted closed sessions with the internal auditors and external auditors during the year.

Table 5: Audit Committee meetings for 2018–19

Audit Committee members

Eligible meetings

Attendance

Will Laurie, Independent Member, Chair

4

4

Stephen Knight, Independent Member

4

4

Jan Harris, Independent Member

4

4

Samantha Montenegro, Chief Risk and Compliance Officer, AOFM (a)

2

1

Erin Martin, A/g Chief Risk and Compliance Officer, AOFM (b)

2

1

(a)  Ms Samantha Montenegro commenced a secondment from 7 March 2019 and was replaced as a committee member by Ms Erin Martin.

(b)  Ms Erin Martin’s first eligible meeting was on 14 March 2019.

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. Prevailing financial market conditions are also discussed during periods of high volatility or recent abrupt change. In periods of high issuance programs the forward projected call on financial markets through debt issuance may also be a factor of close interest. 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 periodically 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 Department 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, evaluate financial market conditions, review deal execution and consider other matters of related interest via presentations or research papers. Membership during 2018–19 included the CEO, Head of Portfolio Strategy and Research, Head of Global Markets and Business Strategy, Head of Funding and Liquidity and Head of Investor Relations, with other senior staff holding relevant functional responsibilities invited as contributors and observers. Meetings are generally convened on a quarterly basis.

Management of fraud risk

The AOFM has a minimal appetite for fraud, and has taken comprehensive steps to prevent the occurrence of fraud. These include the application of a fraud control plan and processes and systems to ensure the regular identification, assessment and treatment of fraud risk vulnerabilities. Mandatory annual fraud awareness training is provided to all staff and is also provided when on boarding new staff. The AOFM’s approach to fraud risk management complies with the PGPA Act and Rule and the Commonwealth Fraud Control Framework.

The AOFM reports fraud information annually to the responsible minister and the Australian Institute of Criminology. For 2018–19 the AOFM did not identify any instances 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 making appropriate risk-informed decisions. 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 identify 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. For the 2018 calendar year, the framework was assessed at an ‘advanced’ rating of maturity under the Comcover Benchmarking Program; this is 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 the AOFM’s medium to long term objectives. These 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 as part of the annual 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 reviewed at least on a quarterly basis; and
  • Operational risks — relate to business processes and corporate activities of the AOFM. They generally deal with matters of compliance, the availability, integrity and/or actions of staff, providers, systems, and internal processes. These risks are reviewed at least quarterly.
  • 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 disruption. These arrangements include multiple levels of redundancy that can be employed 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. The most time critical functions covered by the plan are tenders, settlements and AGS payment obligations (coupon payments and maturity redemptions).

Business continuity plans were updated and tested in 2018–19 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 2018-19, 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 2018-19 included:

  • completion of the annual assurance testing program on key controls and compliance with key legislative and policy requirements;
  • 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 five reviews in 2018–19:

  • a health check review to assess the compliance of the AOFM’s Privacy Framework against relevant legislative requirements;
  • an in-flight health check review of the AOFM’s draft Workforce Plan to ensure planned activities reflected priorities of the AOFM and that it included ongoing monitoring and evaluation activities;
  • a review of the AOFM’s Assurance Framework;
  • project assurance for the AOFM’s website redevelopments [final report issued after 30 June 2019]; and
  • a review of the AOFM’s risk culture to assess maturity and changes relative to benchmark results established from the risk culture survey completed in 2016-17 [final report issued after 30 June 3019].

The internal auditor also completed a management initiated review to assess the design and integrity of the AOFM’s Syndication Allocation 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 2019, four internal audit recommendations remained outstanding (out of 32 for the year) and are being addressed in accordance with agreed timelines.

Judicial decisions

In 2018–19, 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 2018–19 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 2019-23 was finalised during the reporting period. The Plan is a context fit-for-purpose management tool (used mostly by the Executive Group) and aims to maintain organisational resilience and promote the development of staff.

The external labour environment has remained largely beneficial to AOFM operations during the period of the previous workforce plan. Reduced headcount in the financial sector has widened the pool of relevantly skilled people available for recruitment at the experienced and graduate level. AOFM investment in staff through development experiences including secondments and third party provider training has further increased the value of our human capital.

The Workforce Plan 2019-23 identifies five emerging issues and establishes actions to position AOFM to meet the challenges if they arise. The emerging issues the AOFM may need to address in the coming five years are:

  1. responding quickly and seamlessly to any additional mandate, including the Australian Business Securitisation Fund (the ABSF);
  2. adapting business processes to meet with developments in IT and changing regulatory standards;
  3. maintaining investor confidence in the AOFM, specifically and the AGS market more broadly through AOFM’s custodial role;
  4. building on AOFM’s ability (and comparative advantage) to provide technical advice within government on a range of matters related to market dynamics, debt pricing, and balance sheet risk; and
  5. extending the capability of the agency to reinforce a ‘high-performing’ culture.

The Plan establishes a range of actions to position the AOFM workforce to meet these challenges over the life of the Plan.

Enterprise Agreement

The AOFM Enterprise Agreement 2015–2018 was approved by the Fair Work Commission and came into effect on 17 July 2015; and it continues to apply. The CEO has authorised adjustments to AOFM pay rates via two determinations under subsection 24(1) of the Public Service Act 1999; one in November 2015 and the other in July 2018.

Training and development

In 2018–19, all staff participated in some form of training. This included presentation skills workshops, compliance training, leadership programmes, and financial markets related courses. The AOFM also supported further individual professional development activities and an internal seminar series. Payments to external providers for training and development during the period averaged $4,373 per full-time equivalent employee (FTE).

Eighty-eight per cent of AOFM staff have degree qualifications, with 25 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.

The AOFM workforce

As at 30 June 2019, AOFM employed 37.3 FTE. Table 6 shows the paid head count of the workforce by broadband classification as at the beginning and end of 2018–19.

Table 6: Operative and paid inoperative staff as at 30 June 2019 and 2018

 

Ongoing

Non-ongoing

 

 

Full-time

Part-time

Full-time

Part-time

 

Classification

Male

Female

Male

Female

Male

Female

Male

Female

Total

2019

AOFM1

-

1

-

1

 

-

-

-

-

2

AOFM2

17

6

1

4

-

-

-

1

29

AOFM3

5

2

-

-

-

-

-

-

7

AOFM4

1

-

-

-

-

-

-

-

1

CEO

1

-

-

-

-

-

-

-

1

Total

24

9

1

5

-

-

-

1

40

2018

AOFM1

-

2

-

-

-

-

-

-

2

AOFM2

19

5

-

3

-

-

-

-

27

AOFM3

5

2

-

-

-

-

-

-

7

AOFM4

1

-

-

-

-

-

-

-

1

CEO

1

-

-

-

-

-

-

-

1

Total

26

9

-

3

-

-

-

-

38

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 2018-19 some employees were seconded to other agencies with these arrangements extending outside this reporting period. The secondment dates in the 2018-19 period are reported here. From July 2018 to early April 2019 one employee was seconded to the Infrastructure and Project Financing Agency. From July 2018 to late October 2018 another employee was seconded to the Department of the Treasury as the manager of the Risk, Governance and Appointments section. From early March 2019 to the end of the reporting period an employee was seconded to the North Queensland Livestock Industry Recovery Agency.

All staff are based in Canberra including those on the secondments noted above.

AOFM seconded four people to work in various parts of the office. Two people were seconded from the Department of the Treasury to staff a position in the Funding and Liquidity group. A senior advisor was seconded from the European Bank for Reconstruction and Development for three weeks in March 2019. Another person was seconded from the Department of Finance to AOFM’s Finance Unit from early December 2018 through to the end of the reporting period.

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 2018–19.

Other staffing changes

One ongoing employee and one non-ongoing employee were recruited during 2018-19.

There was one ongoing staff departure during the year.

Staff departures represented 2.7 per cent of average staffing levels in 2018–19 (2.7 per cent in 2017–18).

The retention rate for 2018–19 was 97.4 per cent, with an average annual retention rate of 90.5 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 determinations 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 2019 are shown in Table 7. These rates were set in accordance with the AOFM Enterprise Agreement 2015-2018 and determinations made under subsection 24(1) of the Public Service Act 1999.

Table 7: AOFM salary ranges

 

30 June 2019

Classification

Band low $

Band high $

AOFM1

43,204

78,955

AOFM2

76,839

156,619

AOFM3

182,575

228,219

AOFM4

245,555

306,944

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 employees 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. 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 2018–19. 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 or notifiable incidents in 2018–19.

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

Consultants

During 2018–19, one new consultancy contract was entered into with total actual expenditure of $24,200. In addition, two ongoing consultancy contracts were active during 2018–19, involving total actual expenditure of $188,814. This is summarised in Table 8.

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 8: Consultancy contracts

 

2015–16

2016–17

2017–18

2018–19

Number of consultancy contracts

New contracts

9

1

2

1

Ongoing contracts

5

3

2

2

Expenditure (including GST)

New contracts

$211,337

$14,614

$13,200

$24,200

Ongoing contracts

$222,974

$221,822

$261,715

$188,814

 

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

 Two 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 $3.60 billion of Treasury Bonds (a May 2041 maturity) in July 2018. The AOFM appointed Commonwealth Bank of Australia, Toronto Dominion Australia Limited, UBS AG (Australia Branch) and Westpac Banking Corporation to act as managers for the issue.

The second contract was for the syndicated issuance of $3.75 billion of Treasury Indexed Bonds (a February 2050 maturity) in September 2018. The AOFM appointed Citigroup Global Markets Australia, Deutsche Bank AG, Merrill Lynch (Australia) Futures Limited, UBS AG (Australia Branch) and Westpac Banking Corporation 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, $12.13 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-co….

Consistent with paragraph 5.5 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.