Differences between non-departmental entity types
There are three broad forms of non-departmental entities that can be established:
- public entity
- special body
- administrative office.
This section will explore the differences between a public entity, special body and an administrative office. You can find more detail about creating public entities and administrative offices below, as almost all non-departmental entities should fall into one of these two categories.
When is establishing a public entity appropriate?
New public entities should only be established where it can be demonstrated that this is the most effective and appropriate means of carrying out the desired function.
This guide refers to public entity functions being performed at ‘arm’s length’ from routine ministerial control. This means that public entities perform their functions with a degree of autonomy from a minister’s decisions. While public service agencies are generally directly accountable to ministers, most public entities are generally accountable to a governing board or independent appointee, who are accountable to the responsible minister.
In general, the creation of a public entity should only be considered if:
- There are strong reasons for a function to be performed at arm’s length from routine ministerial control. For example, if greater independence promotes greater public confidence in decisions made.
- There is no existing public sector body that performs similar functions, and an existing body cannot be expanded to perform the identified function.
- Independence from the Crown is required due to the nature of the functions. For example, if the government may be bound by the public entity’s decisions, or the public entity is established to scrutinise government actions.
- The entity has a clearly defined range of specialist functions which require those governing and managing the entity to focus solely on their defined role.
- In the case of an advisory function, there is a need for ongoing independent, expert advice to ministers or the government on technical or other specialised issues.
Benefits and risks
Creating a public entity provides both benefits and risks to government.
A public entity’s increased autonomy relative to a department and arm’s length from ministerial direction may result in:
- A benefit of improved performance due to greater operational flexibility. This can promote efficient decision making and innovative solutions to problems.
- A risk of fragmentation by exposing the government to wider financial and employment risks. This can happen due to less standardised direction and control mechanisms. For example, it is more difficult to ensure public entities comply with whole of government policies.
When is establishing an administrative office (AO) appropriate?
AOs are used to perform a range of discrete advisory, support, project, service delivery and regulatory functions. In most cases, government functions should be carried out by departments or public entities.
Generally, an AO should not be assigned functions in legislation. AOs are intended to be flexible, as they can be created and abolished by an Order issued by the Governor in Council. Assigning legislative functions to an AO removes this flexibility
Statutory functions can sometimes be delegated to an AO or its Head, rather than to the minister or portfolio department. This is possible if the relevant legislation, other than the Public Administration Act 2004 (PAA), allows such a delegation. In rare circumstances, this may be a useful administrative form for public functions that require close oversight or that cross portfolio boundaries.
In summary, the establishment of a new AO may be appropriate if:
- the function is discrete and the proposed activities can be clearly specified (such as advisory, support, project, service delivery and regulatory functions)
- effective delivery of the function requires operational autonomy from a department, including the employment of dedicated staff, separate internal structures and non-financial processes which allow them to operate with significant managerial flexibility is appropriate
- the function can be performed within the financial processes and oversight of the department such that the Department Head can meet their responsibility for the financial management of the AO
- the function cannot be performed by an existing entity
- close ministerial oversight is expected
Benefits and risks
AOs have multiple and overlapping reporting lines that require careful management. The AO Head is responsible to the relevant Department Head (other than for any legislated functions) and also has the same obligations as a Department Head in relation to the AO. This means that the AO Head is responsible to both the Department Head and minister for the general conduct and the effective, efficient and economical management of the functions and activities of the AO, and must advise them both on any matters related to the AO.
In comparison, departments and public entities generally have clearer lines of accountability.
AOs do not have a separate legal identity from the Crown in right of the State of Victoria. They can be thought of as business units within a department with a defined degree of operational autonomy from the Department Head. This is beneficial if there is a discrete set of functions that need minimal day-to-day control from the department, but do not need to be performed by a legally independent entity.
Another advantage is that AOs can develop and maintain strong branding and a separate identity from their department in pursuing their narrower functions. This is not individually a compelling enough reason to establish an AO—business units in departments can also establish separate branding.
Because AOs have separate internal structures and non-financial processes, including a degree of managerial autonomy, AO Heads have independent employment powers. This means that the employees of an AO are employees of the AO Head.
AOs must be incorporated within the department’s annual financial report under the FMA, so they must operate within the oversight of the department head in relation to all financial matters. If the Department Head is not given clearly oversight over the AO’s financial matters, this compromises the Department Head and department CFO’s ability to sign off on the department’s financial statements for Parliament.
Summary of differences between a public entity and an AO
This table summarises the key differences outlined above between public entities and AOs:
| Characteristics | Public entity | Administrative Office |
|---|---|---|
| Functions and/or policy objectives | A wide range of functions at an arm’s length from ministers, including:
| Provide discrete groups of services and functions with activities can be clearly specified, including:
|
| Governance structure | Typically has a governing board appointed by the minister. The board of a public entity is accountable to a minister or ministers of the government. | The AO Head employs staff and is at least partially responsible to the Department Head. AO head has significant managerial autonomy over non-financial matters. The AO Head is responsible to the portfolio Department Head for the AO’s general conduct and the effective, efficient and economical management of its functions and activities under section 14 of the PAA, including financial management as the Departmental Head retains ultimate responsibility for financial matters. AOs may also have statutory functions that are performed independently of the responsible Department Head. |
| Relationship with the minister | Degree of ministerial control varies across different entities with different functions. Minister’s powers of direction identified in establishing instrument. | Minister may have high level of direction and control through the Department Head. AO Heads have the same responsibilities in relation to an AO as a Department Head has in relation to a Department, meaning that they must advise the minister on matters relating to the AO. |
| Relationship with the Department Head | The Department Head of the relevant department is responsible for advising the minister on matters related to the entity, including about how it is exercising its functions. | An AO Head is responsible to the Department Head for the exercise of the AO’s functions and must advise the department on all matters relating to the AO. This responsibility to the department does not displace the AO Head’s obligations to advise the minister on matters relating to the AO.
|
| Financial arrangements | Various sources of funding, including appropriation administered by the monitoring department, commercial revenue, fees, fines, levies etc. Usually subject to FMA and subordinate instruments (Standing Directions) | Usually funded through relevant department. The AO must be combined into the overall department’s Annual Financial Report, and the Department Head is responsible for ensuring the AO complies with all the financial management obligations that apply to the department. Not separately subject to the FMA and subordinate instruments (Standing Directions), as these are applied through the related Department. |
| Legal form and status | Many possible legal forms Generally, a separate legal status to the Crown. | No separate legal identity. Part of the Crown. |
| Benefits | Potential improved performance due to greater operational flexibility which promotes efficient decision making and innovative solutions to problems. Necessary if independence from departmental or ministerial control is required. | Greater operational freedom from the department, except in relation to financial management. This can be useful when completing a discrete function that does not require day-to-day direction from the department. Can be established quickly compared to a statutory public entity.
|
| Risks | Potential risk of fragmentation by exposing the government to wider financial and employment risks because of less standardised direction and control mechanisms. For example, adherence to whole of government policies more difficult to enforce. | Multiple and overlapping lines of accountability, requiring careful management, particularly to ensure that all key personnel can meet their legal obligations, e.g. the Department Head’s legal responsibility for the financial management of the AO. |
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