Section 83 of the Constitution provides that no amount may be paid out of the Consolidated Revenue Fund except under an appropriation made by law. The Department of Finance and Deregulation (DoFD) provided information to all agencies in 2011 regarding the need for specific risk assessments in relation to Section 83.
The possibility of this being an issue for the Scheme was reported in the notes to the 2010–11 financial statements and the Scheme undertook to investigate the issue during the 2011–12 financial year. These requirements arose because DoFD had become aware that there was an increased risk for all agencies of non-compliance with Section 83 where payments are made from special appropriations and special accounts that do not accord with conditions in the relevant legislation.
During 2012–13 additional legal advice was received that indicated there could be breaches of section 83 under circumstances with payments for goods and services tax. The Scheme’s preliminary determination is that there is a low risk of the certain circumstances mentioned in the legal advice applying to the Scheme and is not aware of any specific breaches of section 83 in respect of this issue. The Scheme will review its processes and controls over payment for these items.
It is important to note that it is impossible to fully remove the potential for Section 83 breaches for payments.
During 2011–12, the Scheme developed a plan to review exposure to risks of not complying with statutory conditions on payments from appropriations. The plan was to:
- Consider the lawfulness of the Scheme’s appropriation with a high level risk assessment of its payments, including an assessment of what controls are available to ensure alignment between the legislation, ICT systems and policies/procedures;
- Undertake detailed risk assessments of all payment types within the special account;
- Undertake transaction testing of those risk assessments assessed at medium;
- Develop a strategy and reporting regime for potential beaches of Section 83; and
- Consider any remediation action required – including changes to legislation, ICT systems and policies/procedures.
This assessment process was undertaken in five distinct steps:
- High Level Risk assessment and material to support this view
- Detailed risk assessments of all payment types
- Undertake transactional testing of those risk assessments assessed at medium
- Develop a strategy and reporting regime for any potential breaches of Section 83
- Remediation action – potential Section 83 breaches.
A detailed risk assessment was undertaken for the Scheme with the outcome of the Scheme being a low risk. As such additional transaction testing was not necessary. Within this process, Section 83 risk was assessed in relation to the rigor of statutory compliance in relevant legislation.
The Defence Homes Act 1918 Section 40(4)(a)(iii) states:
‘The purpose of the Account is to make all payments by the Commonwealth in connection with its activities as an insurer under this Act, including a payment by it that it is not legally required to make but that is of a kind that would be made by a person carrying on the business of insurance in accordance with sound commercial principles’.
This offers greater flexibility to the kinds of payments the Scheme is required to make in the course of normal insurance business so the likelihood of Section 83 being breached is extremely low.
A secondary overarching assessment was undertaken with data sources including:
- Results from Internal Audit reports / Business Area compliance testing
- Interim findings from the AN AO on the 2011–12 Financial Statements
- Results from the Certificate of Compliance
No potential breaches were identified for the Scheme.
The Scheme’s Audit and Risk Committee and Audit & Financial Statements Sub-Committee formed a view that the Scheme had undertaken a comprehensive self-assessment of its Section 83 risk and this work was consistent with the published policy statement from DoFD. The Scheme will continue to monitor its level of compliance with Section 83 of the Constitution across all legislation for which it is administratively responsible. Where possible, amendments to legislation will continue to be progressed.