The public entity operating environment

This includes the composition of the sector, the key characteristics of public entities, the accountability framework within which public entities operate and the framework for determining each individual entity’s operational priorities and constraints.

The public sector

The Victorian public sector performs a wide variety of functions on behalf of government, including direct provision of services to the community, provision of policy advice, the collection and administration of public money and, regulating funding and contracting private and non-government organisations for service delivery. These services are delivered through the Victorian Public Service: departments, authorities and offices, and the Victorian Public Sector Commission (VPSC); and through public entities operating in the wider public sector.

Public entities are organisations that exercise a public function but are established outside the public service. As bodies operating at ‘arm’s length’ from government, public entities perform their functions with a greater degree of independence from ministers in their day-to-day decisions.

A current summary of the Victorian public sector.

Key Characteristics of Public Entities

Public entities are a diverse group of organisations and undertake a wide range of advisory, service delivery, regulatory and other functions within the public sector. Victoria’s public entities include employing bodies such as hospitals, technical and further education (TAFE) institutions, police and emergency service organisations, and water and land management bodies. Also included are many public entities that do not employ staff, such as ministerial advisory committees.

Table 1 summarises the most common functions undertaken by public entities in Victoria. A public entity will often have hybrid or multiple functions.

Table 1: Common functions undertaken by public entities

Despite this diversity, public entities share a number of common characteristics. In general, public entities:

• are established to deliver specific functions for a public purpose;
• perform those public functions and implement government policy within defined boundaries, clearly defined goals or objectives and limitations on their exercise of authority, either through statute or other enabling instrument;
• are part of government but have a separate legal identity – most are incorporated bodies that can contract, employ staff, hold property and engage in legal proceedings in their own name;
• operate at arm’s length from their responsible minister in their day-to-day operations;
• are subjected to ministerial powers of direction that are more structured, limited and specific than those for public service bodies (departments and administrative offices); and
• are generally not legally part of the Crown.

Accountability Framework and Key Relationships

Although public entities operate at ‘arm’s length’ from government in their day-to-day operations, they operate within a broad accountability framework that ensures they are properly directed, controlled and held to account. The CEO of a public entity is accountable to the board of that entity. A public entity’s board is accountable to its responsible minister for the exercise of its functions. The responsible minister, in turn, is accountable to parliament and the community.

Public entities also have a working relationship with their minister’s portfolio department which, as the minister’s principal source of advice on matters within the portfolio, provides support to the minister to account to parliament and ensures the overall coordination of activities within the portfolio.

Figure 2 below shows the accountability framework and key relationships for public entities.

Legal Form

Public entities are established using a variety of legal forms. The legal form of a public entity refers to its status as an incorporated or unincorporated body and the manner in which it is created, whether that be through a legislative or a non-legislative process. In Victoria, public entities may be established using a number of legal forms, depending on factors such as the functions of the entity and the degree of ministerial control required.

With the exception of advisory councils, most public entities are created and empowered through an Act of parliament which is referred to as that entity’s enabling legislation. These entities are known as ‘statutory authorities’. Statutory authorities can be established under:

• entity-specific enabling legislation – provides a legislative framework for the establishment of an individual statutory entity. Allows for the provision of clear direction on the objectives, functions, purpose and operation of the statutory authority. It also provides a public record of the government’s purpose in establishing the entity;
• sector-specific enabling legislation – provides a legislative framework under which multiple statutory entities with similar functions and activities can be established. Sector-specific legislation is often used where there are multiple entities with similar purpose and functions, such as hospitals; and
• broader enabling legislation – provides a range of legislative frameworks to enable public entities to be established without new legislation being passed by parliament. For example, the State Owned Enterprises Act 1992.

Operational Priorities and Constraints

All Victorian public sector organisations are ultimately responsible to the Victorian people through their minister and the parliament, within a legislative framework that allows for the flexibility necessary to respond to change. On behalf of their board, CEOs ensure that their entity fulfils its role. Public entity boards and CEOs need to know who can direct them, how, and in what circumstances.

The operational priorities and constraints of individual public entities are largely determined by:

• legislative requirements – the responsibilities, powers, limitations and governance arrangements conferred on the entity through its enabling legislation and other whole-of-government or sector-specific legislation;
• government policies and priorities; and
• board policies and priorities.

Legislative Requirements

Enabling Legislation

The enabling legislation is the principal reference document that specifies the purpose, responsibilities, powers, limitations and governance arrangements for the entity. It should be read in conjunction with other legislation and government policies.

The enabling legislation can also be read in conjunction with the second reading speech – the speech given when the legislation was introduced into parliament. This speech explains the general principles and purpose of the legislation and can offer insights into the intentions and reasons for the creation of the entity. (see: www.parliament.vic.gov.au/hansard )

Enabling legislation can vary significantly from entity to entity, even within a portfolio or sector, but typically includes matters such as:

• mechanisms for the appointment and termination of board members;
• legal relationships with the department and other stakeholders, including the minister’s powers of direction; and
• employment powers.

Other Legislative Requirements

Additional responsibilities may also be conferred on public entities by other whole-of-government or sector-specific legislation. Legislative requirements relate to factors such as integrity, information handling, finance, taxation, employment provisions and occupational health and safety.

Further information on the compliance and accountability requirements for public entities is can be found here:

• Board Obligations

Government Policies and Priorities

A public entity’s authorising environment is also determined by the government’s policies and priorities. Government priorities are determined by the minister and are reflected in statements of expectations or directions issued by the minister to the board, or in government policy and guidelines.

It is the board’s responsibility to ensure that the CEO is fully aware of all such correspondence and directives. In practice, given the full time nature of their role, the CEO should take joint responsibility for monitoring changes to government policies and priorities. Many entities also provide administrative support to their boards to monitor incoming information, correspondence and directives.

Ministerial Directions

A ministerial direction is a direction addressed to a board of a public entity, requiring it to act in a particular way in relation to certain aspects of its responsibilities or assigning new responsibilities. Ministerial directions most often relate to matters of general policy and procedures. The board and officers of the public entity must follow such a direction unless it is unlawful for some reason.

One way in which a portfolio minister can issue an entity with a direction is through a statement of expectations or statement of obligations, which outlines the government’s priorities for the entity.

Some ministerial directions are authorised by Acts of parliament. These directions are normally written. Sometimes the Act under which a direction is made requires that directions must be noted in the annual report of the public entity or the annual report of the department.

Ministerial directions can also be issued without the specific backing of an Act of parliament.

Some directions can emanate from a minister other than the portfolio minister responsible for a particular public entity, e.g. the Minister for Finance.

The board must:

• ensure that the nature and terms of ministerial directions are complied with by the board and officers of the public entity;
• assume that a ministerial direction must be complied with unless the board has reliable advice that the direction is unlawful or cannot be complied with for some other reason; and
• ensure that, where a ministerial direction cannot be complied with for any reason, the board ensures the minister is advised as soon as possible.

The CEO should provide support to the board in ensuring the entity complies with ministerial directions.

Government Policy and Guidelines

In addition to ministerial directions, the way in which entities operate can be guided by whole-of-government policies and guidelines. These may be specific to the portfolio, or can apply to all entities.

Examples of government policies and guidelines that may inform the operations of public entities include:

• Gifts, Benefits and Hospitality Policy Framework
• Financial Management Compliance Framework
• Financial Reporting Directions
• Victorian Government Risk Management Framework
• Code of Conduct for Victorian Public Sector Employees
• Conflict of Interest Policy Framework
• Policy on Executive Remuneration for Public Entities in the Broader Public Sector

Board Policies and Priorities

Finally, a public entity’s authorising environment is also determined by the policies and priorities of the entity’s board, which in turn reflect the policies and priorities of government. These are reflected in strategic plans, directions, board charter and instruments of delegation.

Questions to Consider

For more on the Victorian system of government see the Welcome to Government resource.