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the Controller and Auditor General (CAG) provides independent assurance to Parliament and the public that public sector organisations are operating and accounting for their performance in accordance with Parliament’s intentions. The act also governs the responsibilities, duties and powers of the CAG, the scope and procedure of audits of public entities, and the duty to report to the House of Representatives.

The Crown Entities Act was expected to be adopted in 2004. This law provides a framework for categorising the various types of “arm’s length agencies” that were created in the 1990s (especially) to implement the government’s policy of decentralised, but responsible, management of public sector resources.

1.2. Reforms of budget system laws

The far-reaching reforms in the budget system have been categorised into three stages: the marketisation (1985-91), the strategic (1992-96) and the adaptive capacity phases (1997 to the present) (Pallot, 2002). Prior to 1985 – during the traditional and managerialist phases – the government financial management system had come under heavy criticism, because it lacked clear objectives and accountability for results (Treasury, 1989). Relationships between the aims of these programmes and the overall aims of the government were frequently unclear. Accounting systems did not measure total resource use, since the full cost of capital was excluded. The systems administered by central agencies curtailed freedom to manage effectively and resulted in poor central decision making. The system was designed for control of inputs rather than performance in the production of public services. These perceived failures, together with the poor macro-fiscal performance of the 1980s, led to the enactment of new legislation to enhance efficiency and accountability of public financial management (Janssen, 2001). Ministers were provided with new tools for examining spending priorities and for reviewing departmental efficiency.

Besides large fiscal deficits and increasing public debt, theory spurred this reform (Schick, 1996; Scott, 1996). Managerial theory provided a framework to allow more discretion to public sector managers, who were not to be held responsible for results unless they had freedom to act. Hence managers were authorised to: i) spend and hire within agreed budgets as they saw fit; ii) make their own choices regarding operating expenses and other purchases; and iii) run their organisation free of ex ante control. Although managerial doctrine explains some of the public sector innovations, it does not account for the government’s recourse to contract-type arrangements or the emphasis on outputs. New institutional economics, agency theory, and transaction cost economics provided the intellectual underpinnings to these innovations. Institutional economics suggests the manager’s interest might

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diverge from the owner’s interest resulting in poor and insufficient outcomes. To facilitate appropriate behaviour, ex ante performance criteria for managers were specified with the delivery of performance being subject to reporting and scrutiny. A well-run government department should: i) have clear objectives that inform managers of what is expected and enables their performance to be monitored; ii) be transparent in explaining these objectives and the means by which they are to be pursued; iii) give managers and others incentives to achieve agreed goals; and iv) have incentives and information that enhance accountability of agents to principals. With the passage of the SSA in 1988, all permanent department heads became chief executives contracted for fixed terms.

Within about eighteen months after enactment of the PFA in 1989, all departments had shifted from cash accounting and budgeting to an accrual basis. The 1994 FRA required the government to establish and disclose mediumand long-term economic and budgetary objectives, and the specification of strategic and key results. Principles of fiscal responsibility were defined in the FRA to assist in ensuring stable macro-fiscal strategy in the face of a changed electoral system – from the first-past-the-post-system inherited from the United Kingdom to a mixed member proportional representation system.

In 2001, a government advisory committee reviewed the operation of the new financial management system during the 1990s. Four priority areas for change were identified: better integrated service delivery; addressing fragmentation and improving alignment in the State sector; enhancing people and culture; and improving central agency leadership. In response, the government introduced the Public Finance (State Sector Management) Bill in 2003 (see Minister of Finance and the Minister of State Services, 2003). The bill encompasses:

●Integration of, and amendments to, the PFA and the FRA, including: broadening appropriations to allow ministers more flexibility while retaining levels of reporting and accountability to Parliament; enhancing departmental disclosures to ensure a broader range of information about intended and actual performance; strengthening the Auditor General’s controller function by providing the Auditor General with the power to direct a minister to report to Parliament in a case where the Auditor General has reason to believe that any expenditure that has been incurred is unlawful or inconsistent with an appropriation.

●Amendments to the SSA including: extending the State Services Commissioner’s mandate to provide leadership and guidance to the wider State sector, especially on ethics, values and standards, and to promote senior leadership development in the State sector.