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Annual Report 2000-2001

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Entire Document 658kB
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Letter of Transmission (not available as HTML) 27kB
Part 1: Overview 44kB
Part 2: 2000-01 Debt issuance and debt redemption 43kB
Part 3: Portfolio management 58kB
Part 4: Management and accountability 69kB
Part 5: Financial statements 160kB
ANAO - Independent audit report (not available as HTML) 76kB
Part 6 Appendices: Commonwealth Government securities on issue 127kB
Glossary 22kB
Acronyms 9kB
Index 12kB

Introduction and guide to the report

    This is the second Annual Report of the Australian Office of Financial Management (AOFM) which was established from 1 July 1999 as a prescribed agency within the Treasury portfolio under the Financial Management and Accountability Act 1997. The AOFM assumed responsibility for the Commonwealth's debt management activities, which were previously undertaken within the Department of the Treasury.

    In addition to meeting the annual reporting requirements established by Parliament, the report provides information on the Commonwealth's debt management operations for 2000-01 which, prior to last year, was provided in an annual Commonwealth Debt Management report.

    The report mainly covers Commonwealth Government securities (CGS) on issue for the Commonwealth and operations in 2000-01 in relation to that debt. Separate sections of the report provide details of 2000-01 debt issuance and debt redemption and the Commonwealth's portfolio management in 2000-01.

    A series of appendices provides statistical information on the stock of CGS on issue for the Commonwealth, the States and the Northern Territory and outstanding Commonwealth investments in CGS and term deposits at 30 June 2001; CGS issued during 2000-01; the redemption in 2000-01 of CGS on issue for the Commonwealth; and details of the redemption in 2000-01 of CGS on allocation to the States and Territories and of their outstanding holdings at 30 June 2001.

    In 2000-01, as has been the case since its establishment, human resource management for the AOFM was largely undertaken by the Department of the Treasury under a Service Level Agreement. As appropriate, this report reproduces material on those matters from the Treasury Annual Report, edited to reflect particular AOFM circumstances.

Other sources of information

    This is the only publication currently produced by the AOFM. Information on Commonwealth debt management for previous years is contained in last year's Annual Report and previous annual Commonwealth Debt Management reports These reports are available on the AOFM website ( Also on that website are monthly data series on movements in CGS outstanding, Commonwealth holdings of CGS and benchmark Treasury Fixed Coupon Bonds outstanding, and a data series, updated quarterly, on the gross outstanding debt of the Commonwealth Government which is published in accordance with the Special Data Dissemination Standards of the International Monetary Fund. The website also contains details of the Commonwealth's borrowing program, AOFM media releases, speeches and presentations, the AOFM Online Action Plan and general information concerning the AOFM.


    Enquiries regarding this report may be directed to:

    Administration Unit
    Australian Office of Financial Management
    Treasury Building
    Langton Crescent
    PARKES ACT 2600
    Telephone (61-2) 6263 1175
    Fax (61-2) 6263 1222

Review by the Chief Executive Officer

    During 2000-01, the key objective of the Australian Office of Financial Management has been to ensure the execution of the Commonwealth's net debt portfolio management consistent with benchmark requirements and maintenance of risk exposures within approved delegations. In addition, reflecting its recent formation, the AOFM has continued to focus on the development of organisational capabilities and resources in order to achieve its vision of global excellence in sovereign debt management.

The year in review

    The year has seen a number of significant developments and initiatives in all aspects of the operation of the AOFM.

    The AOFM Advisory Board was established and held its first meeting in December. The Board has been established to perform an advisory role to the Secretary to the Treasury on matters relating to corporate governance, broad financial risk management and strategic planning issues. The establishment of the Board further strengthens the existing corporate governance framework as well as providing a forum for the discussion of broad strategic issues.

    The AOFM has maintained its commitment to high standards of corporate governance by applying a disciplined approach to ensuring that accountabilities associated with the functions of the Advisory Board, Liability Management, Audit and Management Committees are carried out on a timely basis and within established charters.

    Portfolio duration targeting proved to be especially challenging in the year. The combined impact of the overall decline in net debt and the maintenance of outstandings in the Commonwealth's longer dated benchmark lines would have necessitated a substantial increase in the size of the Commonwealth's swap program in order to meet portfolio benchmark targets. The decision not to take that course of action reflected a desire to spread execution in an orderly fashion over a medium term horizon.

    A review of the AOFM's strategic debt management objectives and existing benchmark assumptions was initiated over the course of the year. The regular review of the strategic debt management objectives, as well as liability benchmark assumptions, is consistent with meeting our commitment to being a prudent sovereign debt manager. A key aspect of the initial stage of this review process has been to outline the proposed control and risk policy framework under which the AOFM's debt management activities will be executed. The recommendations from this initial stage of the review have now been approved by the Treasurer.

    Over the year, the AOFM continued to work towards assisting the government achieve its debt management objective of applying surplus budget proceeds to the retirement of debt whilst minimising any impact on the liquidity of the Commonwealth Government securities market.

    Along with the responsibilities for the overall debt management function, the AOFM is accountable for the efficient management of the Commonwealth's Official Public Account (OPA) cash balances. The objective of ensuring that year-average overnight cash balances are maintained within the Ministerial guidelines was achieved.

    Over 2000-01, the impact of the Government's new tax arrangements on the Commonwealth's revenue collections significantly affected the AOFM's liquidity and cash management task. The changed revenue profile, whereby large proportions of revenue were centred around the major quarterly tax payment dates, necessitated a change to the traditional issuance profile of the Treasury Note program. The new arrangements facilitated a more efficient matching of the Commonwealth's cashflow whilst assisting the Reserve Bank of Australia achieve its liquidity management objectives.

    Management has taken action to address issues raised by the Australian National Audit Office in its performance audit of Commonwealth Debt Management (Report No 14 of 1999-2000) including, as noted above, the establishment of an Advisory Board to further strengthen the corporate governance framework, and the review of the existing benchmark assumptions. In addition, existing swap tender processes have been strengthened and legal agreements associated with derivative counterparties have been updated.

    A review of the AOFM's human resources framework was undertaken and completed over the year. A new human resources framework has now been developed and is in the process of being implemented. The new framework recognises the AOFM's position as an agency within the Australian Public Service whilst providing a flexible framework to enable the AOFM to achieve its objective of attracting and retaining new specialist resources, consistent with the requirements of a sovereign debt manager.

    In January 2001, the AOFM's newly refurbished premises were completed. The new facilities have been designed to be consistent with the core infrastructure requirements of a sovereign debt manager as well as providing a more flexible and efficient working environment.

    The AOFM has continued to play an active role within the international sovereign debt management community. Our participation is an opportunity to benefit from the experiences of others as well as providing a valuable source of information on international best practice. Where possible, the AOFM seeks to provide assistance to other sovereign debt managers, particularly those in the region. Over the course of the year, a member of staff was assigned to the Papua New Guinea Department of Finance to provide technical assistance with the establishment of a debt management function.

The year ahead

    Over 2001-02, whilst the main focus of attention will continue to be on our key debt management task, the further development of the organisational infrastructure will be a top priority.

    Work has already commenced on a number of significant projects. The review of our strategic debt management objectives and the liability benchmark will continue over the course of the next financial year. This aspect of the review will focus on ensuring that the existing liability benchmark assumptions continue to be consistent with achieving the Commonwealth's desired cost and risk objectives. Given the changing nature of the Commonwealth's financing task, opportunities to improve a range of operational issues associated with the impact of the seasonal nature of the Commonwealth's cashflow profile on the existing benchmark framework will be explored.

    In line with the recommendations outlined in the strategic review of our information technology systems' requirements completed in March this year, work has progressed on the acquisition of a new debt management system. Expressions of interest were sought from a large number of domestic and international debt management system vendors. The project has now entered the pilot stage, with the implementation of the selected system anticipated to begin before the end of the calendar year. The implementation of the new debt management system is expected to provide a more robust risk exposure and performance monitoring platform, along with enabling significant efficiency gains to be achieved in the production of risk management and compliance reports. The platform will also strengthen our existing corporate governance framework.

    In conjunction with the implementation of the new debt management system, a review of the existing risk policy framework will be undertaken. Whilst the existing policy framework meets the requirement of our current operating environment, a review is appropriate given the impact of the continued build-up of financial asset holdings and changes in the Commonwealth's financing task.

    The AOFM will continue to focus on improving the efficiency of the cashflow management task. In association with the Department of Finance and Administration, we have commissioned an external review of the existing information system frameworks used by departments and agencies to provide cashflow forecasts. The objective of the consultancy is to identify opportunities to improve the accuracy and timeliness of the cashflow forecasting process. This will enable efficiency gains to be achieved through reducing the required level of liquidity holdings along with risks and costs associated with existing information collection processes.

    A new organisation structure will be progressively introduced over the year in conjunction with the implementation of our new human resources framework. The new structure has been created to ensure that organisational accountability can be clearly defined and resource allocation focussed on achieving our output objectives. The structure also seeks to further strengthen our corporate governance framework by maintaining a clear separation of the various aspects of our debt management responsibilities, as well as supporting our compliance and reporting frameworks.


    On behalf of all AOFM staff, I wish to note the contribution and support provided by the recently retired Secretary to the Treasury, Mr Ted Evans, in the formative phase of the AOFM.

    The establishment of a new organisation demands a high level of commitment from all members of the team. I would like to take this opportunity to acknowledge the tireless efforts and professionalism of the dedicated AOFM team which has contributed significantly to the continuing development of the Australian Office of Financial Management.

    Michael Allen
    Chief Executive Officer



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