Australian Office of Financial Management
Section 1:  Overview, appropriations and budget measures summary
Overview
The Australian Office of Financial Management (AOFM), a ‘prescribed agency’ under the Financial Management and Accountability Act 1997, is responsible for the Commonwealth’s debt management activities.
The objective of the AOFM is to raise, manage and retire Commonwealth debt at the lowest possible long‑term cost, consistent with an acceptable degree of risk exposure.
Appropriations
The total appropriation for the AOFM in the 2001–02 Budget is $42,860.8 million. Table 1.1 on the following page shows the total appropriations for the AOFM’s outcome.
Price of output appropriation of $5.82 million is based on budgeted expenses (of $5.84 million) after deducting estimated revenues from external sources (of $0.02 million).
The total administered outcome appropriation of $42,855.0 million is based on budgeted expenses of $7,177.0 million, budgeted debt raising and financial investment activity of $35,674.6 million and administered capital appropriation of $3.4 million.

Part C:  Agency Budget Statements - AOFM

Australian Office of Financial Management — appropriations 2001-02
Table 1.1:  Appropriations and other revenue

(1)	C1, E1 and I1 refer to information provided in Table 2.1. K1 refers to information provided in Table 3.1. K2 refers to information provided in Table 3.6. K4 refers to information provided in Table 3.9.
(2)	Bill No. 2 includes Specific Purpose Payments (SPP’s), New Agency Outcomes (NAO’s), administered capital and agency capital via agency injections and loans.
(3)	Refer to Table 3.1 for application of agency revenue.
(4)	Revenue from other sources includes other revenue from government (for example, resources free of charge) and revenue from other sources (for example, sales of goods and services by agencies). Non-appropriated agency and administered revenues are shown in Appendix 1.
(5)	Estimated expenses from administered annual and special appropriations are shown in Appendix 2.
*	Percentage figures indicate the percentage contribution of revenue from government (agency appropriations) to the total price of outputs, by outcome.

Administered capital and agency equity injections and loans
The AOFM will receive administered capital of $3.4 million for new specialist debt management hardware and software. This appropriation has been carried over from the previous financial year.
Section 2:  Outcomes and outputs information
The map below shows the relationship between Government outcomes and the contributing outputs for the Australian Office of Financial Management (AOFM). Financial details for Outcome 1, by output, appear in Table 2.1 while non‑financial information for Outcome 1 appears in Table 2.2.
Chart 6:  Outcomes and output groups

Changes to outcomes and outputs
There are no proposed changes in outcomes or outputs since the previous year.
Outcome 1 — Description
To enhance the Commonwealth’s capacity to manage its net debt portfolio, offering the prospect of savings in debt servicing costs and an improvement in the net worth of the Commonwealth over time
Measures affecting Outcome 1
There are no Budget measures for 2001-02.

Outcome 1 — Resourcing
Table 2.1 shows how the 2001-02 appropriations translate to total resourcing for Outcome 1, including revenues from government (appropriation), revenue from other sources and total price of outputs.
Table 2.1:  Total resources for Outcome 1

(1)	C1, E1 and I1 — see Table 1.1.

Outcome 1 — Contribution of outputs
The AOFM has only one output — debt management. The AOFM’s debt management operations include the issue of various borrowing instruments, the strategic formulation and undertaking of portfolio management, including through swap transactions, and the administration of the Commonwealth debt portfolio.
Despite surplus funding positions in recent years, the AOFM has undertaken modest issuance programmes directed at maintaining the liquidity and efficiency of Commonwealth Government securities markets while maintaining net debt within agreed portfolio limits. Integral to the continuing efficient management of its funding risk, the AOFM’s specific objective for its major debt instrument, Treasury Bonds, remains building and maintaining liquidity in key benchmark lines over a yield curve extending to around 12-13 years.
The AOFM’s portfolio management objective is to minimise the cost of debt over the long term, subject to acceptable market risk. This objective forms the basis for a defined portfolio benchmark that serves as a target for the composition and nature of market risks within the Commonwealth debt portfolio. The analytical framework behind the benchmark assesses the trade-off between the long-term expected cost and risk of different portfolio structures thus allowing informed decisions about the nature of Commonwealth market exposures.
Debt administration is undertaken by the AOFM in conformity with legislative requirements and in compliance with approved accounting standards.
Table 2.2:  Performance information for Outcome 1
Effectiveness — Overall achievement of the outcome	
Debt issued by the Commonwealth (including Commonwealth Government Securities allocated to States and Territories) and debt assumed from Commonwealth agencies.	Achievement of the Commonwealth’s financing task in a cost-effective manner.	
Performance information for agency outputs	
Output Group 1.1 — Australian Office of Financial Management	
Output 1.1.1 — Debt management	Achievement of the Commonwealth’s financing task in a cost-effective manner. 
Timely production of reports on debt management activities.
Efficient execution of the Commonwealth’s borrowing activities. Partial indicators include the range of accepted bids and the basis point spread between tender and secondary market yields.
Efficient management of the Commonwealth’s cash balances. Indicators include achievement of the Ministerially endorsed cumulative average cash balance target as at end-year.	

Evaluations
Performance with regard to producing the debt management output is currently evaluated using benchmark analysis and regular review of the broader risk management framework to ensure that it remains appropriate in the light of Commonwealth operations and market conditions.
Competitive tendering and contracting
The Department of the Treasury provides a range of corporate services functions to the AOFM. Consequently, the AOFM is participating in the corporate services market testing initiative currently conducted by the Department of the Treasury.

Section 3:  Budgeted financial statements
Budgeted agency and administered financial statements and related notes for the Australian Office of Financial Management (AOFM), are presented in this section. The financial statements are produced for 2000‑01 (estimated actual results), 2001‑02 (Budget estimate) and three forward years and comprise the following statements. The financial statements should be read in conjunction with the accompanying notes.
Agency statements
Budgeted agency statement of financial performance
This statement provides a picture of the expected financial results for the AOFM by identifying full accrual expenses and revenues.
Budgeted agency statement of financial position 
This statement shows the financial position of the AOFM. It enables decision-makers to track the management of the agency’s assets and liabilities.
Budgeted agency statement of cash flows 
This statement provides information on the extent and nature of budgeted cash flows, categorised into expected cash flows from operating activities, investing activities and financing activities.
Agency capital budget statement 
This statement shows all proposed capital expenditure on non‑financial assets, whether funded through capital appropriations (equity or borrowings) or from internally sourced funds.
Agency non-financial assets – summary of movement
This statement shows the budgeted movement in the AOFM’s non‑financial assets during the Budget year 2001-02.

Administered notes
Details of transactions administered by the agency on behalf of the Commonwealth are to be shown in the following notes to the financial statements.
Note of budgeted administered financial performance
This note identifies the main revenues and expenses administered on behalf of the Government.
Note of budgeted administered financial position
This note shows the assets and liabilities administered on behalf of the Government.
Note of budgeted administered cash flows
This note shows cash flows administered on behalf of the Government.
Note of administered capital budget
This note shows details of planned administered capital expenditure.
Note of administered non-financial assets — summary of movement
This note discloses details of budgeted movements in administered non-financial assets during the Budget year 2001-02.

Table 3.1:  Budgeted agency statement of financial performance
for the period ended 30 June

(1)	K1 — see Table 1.1.

Table 3.2:  Budgeted agency statement of financial position
as at 30 June

Table 3.3:  Budgeted agency statement of cash flows 
for the period ended 30 June

Table 3.4:  Agency capital budget statement

Part C:  Agency Budget Statements - AOFM

Table 3.5:  Agency non-financial assets — summary of movement (Budget year 2001-02)

Table 3.6:  Note of budgeted administered financial performance
for the period ended 30 June

(1)	K2 — see Table 1.1.

Table 3.7:  Note of budgeted administered financial position
as at 30 June

Table 3.8:  Note of budgeted administered cash flows
for the period ended 30 June

Table 3.8:  Note of budgeted administered cash flows 
for the period ended 30 June (continued) 

Table 3.9:  Note of administered capital budget

(1)	K4 — see Table 1.1.

Part C:  Agency Budget Statements - AOFM

Table 3.10:  Note of administered non-financial assets — Summary of movement (Budget year 2001-02) 

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Notes to the financial statements
Basis of accounting
The financial statements have been prepared on an accrual basis and are in accordance with the historical cost convention. No allowance is made for the effect of changing prices on the results or the financial position of the AOFM.
Goods and Services Tax (GST)
The budgeted financial statements have been prepared in accordance with the Goods and Services Tax (GST) accounting guidelines of the Urgent Issues Group (UIG) of the Australian Accounting Standards Board. The UIG consensus requires that expenses and assets be accounted for net of recoverable GST, revenues be accounted for net of GST payable and that cash flows and accounts payable and receivable be reported gross. Appropriations are thus net of recoverable GST amounts.
Agency and administered financial statements
Under the Commonwealth’s accrual budgeting framework, and consistent with Australian Accounting Standards, transactions that agencies control (agency transactions) are separately budgeted for and reported from transactions agencies do not have control over (administered transactions). This ensures that agencies are only held fully accountable for the transactions over which they have control.
•	Agency assets, liabilities, revenues and expenses are those which are controlled by the agency. Agency expenses include employee and supplier expenses and other administrative costs, which are incurred by the agency in providing its goods and services.
•	Administered revenues, expenses, assets and liabilities are those, which are, managed on behalf of the Government according to set government directions. Administered expenses include interest incurred on Commonwealth debt and administered revenues include interest earned on housing agreement loans and interest from swaps.
Appropriations in the accrual budgeting framework
Under the Commonwealth’s accrual budgeting framework, separate annual appropriations are provided to the AOFM for:
•	agency price of outputs appropriations: representing the Government’s purchase of outputs;
•	administered expense appropriations: for the estimated administered expenses relating to debt management outcome; and
•	administered capital appropriations: representing appropriation for investment in specialist debt management hardware and software.
In addition, special appropriations continue under the accrual appropriation framework, and fund the majority of payments from the consolidated revenue fund, including debt redemption and financial investment activity. 
Agency revenues and expenses
Appropriations
Price of outputs appropriation estimates are not based on market price indicators. Currently, the agreed price of outputs appropriation estimates are based on budgeted expenses.
The AOFM has prepared its estimates for the 2001-02 budget and forward years to achieve a break-even operating result. Consequently the appropriation revenue from government represents the funding required to meet all expenses after deduction of revenue from other sources.
Revenues from other sources — other revenue from other sources
As part of the agency banking incentive scheme, the AOFM has estimated that it will earn $20,000 interest on credit balances in its agency account and from term deposit investments.
Expenses
The AOFM envisages a further increase of the staffing of the operation over the Budget year 2001-02.
Administered revenues and expenses
Non‑taxation operating revenues — interest
	Estimated actual	Estimated	
	2000-01
$’000	2001-02
$’000	2002-03
$’000	2003-04
$’000	2004-05
$’000	
Interest						
  Interest on housing agreements	172,263	169,249	166,109	162,853	159,477	
  Interest on state and territory debt	53,042	37,558	31,944	20,070	11,284	
  Interest from other sources	2,795,360	2,944,754	2,872,029	2,933,408	3,625,223	
						
Total interest	3,020,665	3,151,561	3,070,082	3,116,331	3,795,984	
Interest from other sources includes interest from swaps and investments. 
Operating expenses — grants
	Estimated actual	Estimated	
	2000-01
$’000	2001-02
$’000	2002-03
$’000	2003-04
$’000	2004-05
$’000	
Grants						
  Grants to State and Territory
  Governments	56,644	36,318	31,300	36,704	54,330	
						
Total grants	56,664	36,318	31,300	36,704	54,330	
Operating expenses — interest and other financing costs
	Estimated actual	Estimated	
	2000-01
$’000	2001-02
$’000	2002-03
$’000	2003-04
$’000	2004-05
$’000	
Interest and other costs						
  Interest on Government securities	5,613,538	5,036,059	4,837,908	4,372,631	4,000,598	
  Interest on swaps	2,430,354	2,042,335	1,971,597	1,805,877	1,756,210	
  Interest on other debt	55,068	56,887	38,030	9,220	2,000	
  Net repurchase premia	325,316	‑	‑	‑	‑	
  Other financing costs	2,691	4,594	3,691	3,691	3,691	
						
Total interest and other costs	8,426,967	7,139,875	6,851,226	6,191,419	5,762,499	

Agency assets and liabilities
The employee liabilities of the AOFM are expected to increase from the estimated actuals as at 30 June 2001. The increased liability recognises that staff numbers are expected to grow significantly during the Budget year 2001-02.
The estimated cash reserves will be maintained in order to ensure that the AOFM is well placed to:
•	settle employee liabilities as they fall due;
•	make asset replacements; and
•	repay liabilities.

Administered assets and liabilities
Debt – government securities
The Government security debt represents the book value of government securities net of investments.
Financial assets — receivables
	Estimated Actual	Estimated	
	2000-01
$’000	2001-02
$’000	2002-03
$’000	2003-04
$’000	2004-05
$’000	
Receivables						
  Loans to State and Territory 
  Governments	4,517,106	4,291,933	4,180,148	3,803,329	3,645,011	
  Appropriations receivable	3,297,915	3,328,483	3,432,679	3,356,987	3,431,639	
  Swap principal	22,829	17,366	17,366			
						
Total receivables	7,837,850	7,637,782	7,630,193	7,160,316	7,076,650	

Appendix 1
Agency and administered revenue

Appendix 2
Estimates of expenses from annual and special appropriations