Part 1: AOFM Overview
Role, function, outcome and program structure
The AOFM is responsible for the management of Australian Government debt. The AOFM also manages the government’s cash balances and invests in very low risk financial assets, which in recent years has been in the form of term deposits with the Reserve Bank of Australia (RBA).
The objectives of the AOFM are to:
- meet the budget financing task in a cost effective manner subject to acceptable risk,
- facilitate the government’s cash outlay requirements as and when they fall due, and
- be a credible custodian of the AGS market and other portfolio responsibilities.
The AOFM’s debt management activities include the issuance of Treasury Bonds and Treasury Indexed Bonds. To support the efficient operation of the markets for these debt instruments, a securities lending facility that allows financial market participants to borrow bonds is maintained on behalf of the AOFM by the RBA.
The AOFM’s cash management activities include the issuance of Treasury Notes for short term funding.
The AOFM’s investment management activities include managing a portfolio of Australian RMBS that were acquired under a government program that supported competition in lending for housing after the global financial crisis.
The AOFM is part of the Treasury portfolio. It is accountable to the Secretary to the Treasury and to the Treasurer, and through the Treasurer to the Parliament and the public. However, it is a listed entity under the Public Governance, Performance and Accountability Act 2013 (PGPA Act) and maintains its own accounts and is responsible for compliance with the Act separately to the Treasury. AOFM staff are employed under the Public Service Act 1999.
For budgetary purposes, the AOFM’s activities comprise of one program directed to achieve the following outcome on behalf of the Australian Government: the advancement of macroeconomic growth and stability. This is pursued through issuing debt and investing in financial assets; and managing debt, investments, and cash. The AOFM aims to cost effectively manage the debt portfolios for which it is responsible subject to an acceptable level of risk. Its bond issuance operations take into account a range of considerations, including the government’s policy objectives of supporting liquidity in the AGS market.
The AOFM business structure remains unchanged from the previous reporting period, with its core operational activities being segregated into three broad areas. Activities in portfolio and global market research (including monitoring and anticipating regulatory impacts on financial markets), transaction design and execution, and investor engagement, together form what in the financial sector is typically viewed as ‘front office’ related (Funding, Markets and Strategy).
Business operations comprise transaction settlements, together with all associated payment obligations and the monitoring and financial statement reporting of the AOFM’s transactions (and balance sheet activity) on behalf of the Australian Government. These activities form what is typically viewed in the financial sector as the ‘back office’ (Accounting Services). This is effectively two separate teams.
A ‘middle office’ (Enterprise Risk and Assurance) oversights separation of the back and front office functions through maintaining complementary frameworks for enterprise risk and assurance (including audit) and the coordination of outsourced legal services, and compliance with the AOFM’s obligations under relevant legal, regulatory and delegated powers. It also undertakes performance monitoring of the various portfolio and transaction activities.
AOFM governance and corporate related functions sit within a Corporate Development business unit. Advice on issues regarding the AOFM’s staff development objectives and APS specific issues are provided directly to the Chief Executive through a dedicated role. The Audit Committee reports directly to the CEO and reviews financial and performance reporting, risk oversight and management, and internal controls. Members of the Audit Committee are not officials or employees of AOFM with the exception of the Chief Risk and Compliance Officer.
This overall structure provides for an appropriate segregation of duties — consistent with financial industry best practice.