Principle 5: Control systems have integrity and support accountability
The board has a system in place to ensure there is a flow of information to the board (and to the public sector body) that supports effective policy and coordinated decision making. Control systems are in place to ensure accountability to relevant oversight bodies and to external stakeholders. The integrity of financial statements and other key reports is safeguarded.
Performance measures and monitoring
Performance measures should accurately reflect the effectiveness and efficiency of the public sector body, including both financial and non-financial performance. Both forward looking and retrospective measures should be included. These measures should be presented in an appropriate form to permit effective engagement by the board.
The chairperson, in consultation with the board, should define and agree strategic key performance indicators (KPIs) and measures with the CEO. The board should define and articulate their information requirements and reporting preferences to staff to assist in performance monitoring. Organisational performance should be reviewed regularly. This may occur informally at each meeting, although formal reviews of the public sector body’s performance should occur at least annually, if not more frequently.
Guidelines for access to performance information by board members should be developed. These rules should consider a board member’s rights to information against the appropriate level of focus for the board. The board should also ensure performance monitoring makes appropriate use of quality assurance and benchmarking.
The board must receive adequate financial reports. Board members have a responsibility to be able to read and interpret the financial information contained in reports. Board members should also be able to seek advice where uncertain.
Where relevant, board members must understand and comply with government financial requirements, including requirements set out in the Financial Management Act 2006, and by the Department of Treasury and the Department of Finance.
As a board member, you have a responsibility to be able to read and interpret the financial information contained in the public sector body’s reports, and should seek advice and clarification from the chair if uncertain about aspects of the reports. It will be helpful to understand the aspects of public sector financial management outlined below.
The WA Government raises revenue from state taxation, royalties, the sale of goods and services, public corporations and other revenue sources such as investment income, fees and fines.
In addition, it receives revenue in the form of grants from the Commonwealth Government:
- Tied grants, or specific purpose payments, are provided under certain agreed conditions
- Untied grants are mostly funded from the Goods and Services Tax collected by the Commonwealth Government and distributed to the states based on a formula determined by the Commonwealth Grants Commission.
The government’s primary account is the consolidated account that receives all revenue raised by and granted to the State, and from which amounts are appropriated by Parliament for specific purposes. The consolidated account, together with the trust fund, forms the public account. All payments from it must be authorised by Parliament.
The Western Australian Constitution provides the Lower House with the source of all legislation involving the expenditure of government revenue. The passage of the Budget must be initiated in the Legislative Assembly of Parliament, and is reflected in the Appropriation (Consolidated Account) Recurrent Bill and the Appropriation (Consolidated Account) Capital Bill.
These bills are passed annually with the Budget papers, which outline the current financial position of the State, detail projections of government income and expenditure for the coming financial year, and provide the key mechanisms through which Parliament authorises the expenditure of public money. The bills provide the appropriation authority to the Treasurer, who applies the appropriations based on agreed outputs and targets specified in the Budget papers.
Some boards do not receive an appropriation from government and will generate revenue from the fees imposed on the people or boards they regulate. It is important to remember that even if a board is fully or partially self-funding from their own source of revenue, it does not alter their accountabilities to public sector oversight bodies, to their responsible minister, or through their minister to Parliament.
Financial statements provide information on how the public sector body is operating financially and are usually accompanied by explanatory notes. This information allows board members, senior management of the public sector body, and other stakeholders to identify the body’s financial strengths and weaknesses for the period, which in turn support planning and prioritisation of financial controls.
In public sector bodies, financial reports are usually generated on a monthly basis, which enables board members to review and analyse the results, as well as within the public sector body’s annual report to Parliament. As a board member, you should expect to see:
- balance sheets or the statement of financial position
The balance sheet provides a picture of the financial health of a public sector body at a specific moment in time. The balance sheet outlines the various assets the public sector body owns, its liabilities to stakeholders, and the value of its equity or net worth.
- income and expenditure statement, profit and loss statement or statement of financial performance
The profit and loss statement, or the income statement, is a summary of a public sector body’s income and expenses over a specific period of time, and shows how received funds have been allocated against operating expenses.
- a statement of cash flow or statement of receipts and payments
The statement of cash flows is a summary of money coming into and going out of the public sector body over a specific period of time.
Quick review – Control systems
- Has the board established an audit committee?
- Does the board have an effective procedure in place for ensuring compliance with legal, financial and record keeping requirements?
- Is the board provided with sufficient information to assess the financial and non-financial position and performance of the public sector body?
- Are there rigorous processes in place to effectively oversee the body’s resources?
- Is there a clear performance reporting link to the objectives set out in the strategic and business plans, and where relevant, to the performance agreement with the CEO?
- Do reports to the board include appropriate information to facilitate meaningful review?
- Do all existing board committees have clear terms of reference?
- Is there a process by which the chair of each board committee reports back to the full board regarding the activities of each committee?
Further information is available under good governance guides.
Page last updated 23 May 2017