This report covers a number of the discretionary compensation and debt relief mechanisms that are available to Commonwealth agencies, where individuals or entities have been disadvantaged by legislation, or actions by agencies or staff, or some other negative circumstances. It deals mainly with two legislative mechanisms, namely, act of grace payments and waivers of debt, and one administrative mechanism, the Compensation for Detriment caused by Defective Administration (CDDA) scheme. This report also briefly covers two other mechanisms, namely ex gratia payments and payments in special circumstances relating to Australian Public Service (APS) employment. The main objective of the audit was to assess whether the management of claims for compensation and debt relief in special circumstances was in accordance with relevant legislative requirements and Commonwealth guidelines, and whether the current administrative policies and procedures were adequate.
- Department of Finance and Administration
- Department of Family and Community Services
- Department of Immigration and Multicultural and Indigenous Affairs
- Department of Veterans’ Affairs
- Australian Securities and Investments Commission
The Commonwealth has a number of means by which it may provide compensation or debt relief to individuals or entities that have been disadvantaged by: the effects of legislation; misinformation provided, or actions taken, by Government agencies or staff; or some other negative circumstance. These include mechanisms where legal liability exists and compensation is mandatory, and other mechanisms where the Commonwealth often has a moral, but discretionary, obligation to provide compensation.
This report covers a number of the discretionary compensation mechanisms that are available to agencies operating under the Financial Management and Accountability Act 1997 (FMA Act). It principally deals with two mechanisms enacted in legislation, namely act of grace payments and waivers of debt, and one administrative mechanism, the Compensation for Detriment caused by Defective Administration (CDDA) scheme. This latter scheme provides Portfolio Ministers with the discretion to authorise compensation, where detriment has been caused.
The report also discusses, briefly, two other discretionary mechanisms, namely ex gratia payments and payments in special circumstances relating to Australian Public Service (APS) employment.
The Department of Finance and Administration (Finance) is responsible for the administration of the FMA Act provisions for acts of grace and waivers of debt on behalf of the Minister for Finance and Administration. Finance provides the policy framework and advice to agencies. As well, it processes all act of grace claims, and most agencies' FMA Act waiver claims up to the point of decision by the Parliamentary Secretary to the Minister for Finance and Administration.1 Individual agencies are then responsible for implementing the decisions.
Individual agencies are generally responsible for the administration of CDDA payments, payments in special circumstances relating to APS employment, and ex gratia payments, and waivers of debt administered under legislation other than the FMA Act. However, policy guidance is provided by central agencies, namely, Finance (CDDA), the Australian Public Service Commission (APS employment) and the Department of the Prime Minister and Cabinet (ex gratia).
Financial and operating significance
Individual compensation payments and waivers of debt under each of the mechanisms may range in amount from a few dollars to several million dollars. In total, over the last three financial years, the Australian Government has waived more than $865 million relating to more than three million debts,2 and paid out in excess of $14 million to more than 3000 claimants (act of grace and CDDA payments). These figures have been aggregated from agency financial statements, as agencies are required to report them in the notes to their financial statements. Although not required to be reported in financial statements, ex gratia payments are known to be often in the millions of dollars, while those payments related to APS employment are understood to be rare.
Because the compensation and debt relief mechanisms are discretionary, the Commonwealth must have prudent safeguards in place so that compensation is provided only when warranted. In addition, the Commonwealth has a responsibility to provide compensation in a responsive and timely manner.
It is in the context of these competing considerations that the audit of compensation payments and debt relief was conducted. Moreover, the reportable transactions are deemed to be ‘material by nature' and, irrespective of the amount involved, must be reported in the financial statements without omission, misstatement or non-disclosure.
The accountability framework requires complete disclosure as well as demonstrable and proper stewardship by the Commonwealth in providing compensation to claimants.
It is largely by the consistent adherence to the financial reporting requirements that the objectives of accountability, including transparency, are fulfilled.
The objectives of the audit were to:
- assess whether the management of claims for compensation and debt relief under the various discretionary mechanisms for granting relief was in accordance with relevant legislative requirements and Commonwealth guidelines; and
- determine whether the current administrative policies and procedures, for the various mechanisms of compensation and debt relief, provided for the effective management and reporting of claims made under those mechanisms.
The audit was undertaken at five FMA Act agencies that reported act of grace and CDDA payments, and/or waivers of debt in their 2000–01 and 2001–02 financial statements. The selection included Finance, as the responsible administrative policy maker and the main approving agency for claims made under the FMA Act.
The ANAO concluded that, overall:
- the management of compensatory claims was generally in accordance with the relevant legislative requirements and administrative guidelines; and
- the guidance for the discretionary compensation mechanisms provided a sound basis for the proper management of claims, and for the reporting of the authorised claims that are currently required to be reported publicly.
The ANAO also concluded that there was a suitable framework in place providing individuals, entities and communities with the opportunity to seek and obtain financial compensation or relief where they had been disadvantaged by various negative circumstances. Also, agency processes for dealing with claims under the various compensatory mechanisms were generally in accordance with the relevant guidelines issued by Finance, or other central agencies, where applicable.
However, there was a need to improve certain aspects of particular compensatory mechanisms and the overall coordination of all the arrangements. Those improvements would provide for greater consistency and accountability across all the mechanisms examined, and for the processing of claims in a more timely manner. In particular, the ANAO considered that:
- the provisions in the FMA Act and Public Service Act regarding the use of money appropriated by the Parliament for the purposes of ‘act of grace payments' and ‘APS employment payments in special circumstances', respectively, should be clarified;
- some form of periodic monitoring by Finance of the CDDA scheme should be implemented;
- a broad explanatory framework, or set of guidelines, should be developed for the increased awareness in managing, actioning and reporting of ex gratia payments; and
- recordkeeping systems and practices for both management and accountability purposes could be improved.
The ANAO also concluded that the reporting of act of grace and CDDA payments and waivers of debt in some agency financial statements was not always complete and accurate.
In addition, the ANAO concluded that there was insufficient monitoring of act of grace, CDDA and waiver claims by agency management. This was particularly evidenced by the slow processing times across all agencies. Accordingly, the ANAO considered that agencies should put in place appropriate performance indicators, and report against them on a regular basis.
Finance agreed with the conclusions articulated in the report with respect to the current status of the management of compensatory claims and the guidance available on discretionary compensation mechanisms. In addition, Finance agreed with the conclusion that there is value in exploring the means to improve overall coordination of arrangements, particularly: by clarifying the correct source of appropriations for act of grace payments; monitoring the CDDA scheme; and introducing enhanced recordkeeping systems and reporting practices across all agencies.
Each of the other agencies involved in the audit also responded positively to the audit report.
The audit made eleven recommendations comprising four relating to Finance, including one for the Australian Public Service Commission, and seven for all agencies receiving claims for compensation and debt relief.
Finance, the Australian Public Service Commission, and the other four agencies directly examined in the audit, namely, Centrelink, the Department of Family and Community Services, the Department of Immigration and Multicultural and Indigenous Affairs, and the Department of Veterans' Affairs, generally agreed, or agreed in principle, with the recommendations that related to each of their responsibilities and/or operations.3
1 From March 2002 to the date of preparation of this report, the Parliamentary Secretary was the only person that could authorise payments and waivers, other than for the chief executives of the Australian Securities and Investments Commission and the Commonwealth Superannuation Administration, who could authorise the waiver of certain debts administered by those agencies.
2 These figures include two major waivers of debts due from other Commonwealth bodies ($113 million) and approximately 835 000 debts relating to the waiver of overpayments of Family Tax Benefit and Child Care Benefit (approximately $435 million).
3 Agencies' specific comments on the recommendations or other aspects of the report are provided in the relevant section of the report to which they refer and/or in Appendix 5.