Financial Administration Act (FAA)
The Financial Administration Act is a Canadian legislation dictating the government’s financial management. It sets rules and regulations for managing finances at all levels, including the preparation of financial statements, the management of public funds, and the control of borrowing and debt.
History of the Financial Administration Act
The Financial Administration Act was first enacted in 1985. The legislation’s primary purpose was to update financial management practices in Canada, which had remained essentially unchanged since the 19th century. Since then, the FAA has undergone several amendments to ensure its provisions remain up-to-date.
Purpose of the Financial Administration Act
The FAA established a framework for better financial management throughout the Canadian government. It also specifies rules around who can spend public funds and how they should do it. The Act covers many areas, including the following:
- Budgeting and reporting
- Debt management
- Revenue collection
Main Provisions of the Financial Administration Act
The FAA requires Crown corporations to use a single set of financial management rules. It also provides guidance on the preparation of financial statements, setting out a mandatory format for recording expenses and revenues.
The legislation establishes a central government office to oversee the spending and collection of public funds. It also requires all government departments to maintain detailed records of their financial activities, including the preservation of documents and communications.
Importance of the Financial Administration Act
The FAA has been integral to the financial stability of the Canadian government. It ensures that all departments and agencies are held accountable for their spending and revenue collection and provides a unified standard for financial management throughout all levels of government. Here are some additional benefits.
Maintains High Economic Growth
The FAA helps to ensure that the Canadian government can sustain high economic growth by setting clear and effective standards for money management. Canada reviews this at both the domestic and international levels. The Act references several international agreements, such as the Canada-Peru Free Trade Agreement.
The Act encourages transparency in government operations, as all departments must maintain detailed records of their spending and revenue collection. It also details the procedures organizations must follow during an audit. This improves transparency and builds trust. It also allows Canadians to hold their government accountable for its use of public funds.
The FAA reduces the potential for corruption in government operations by providing clear guidelines on how public funds should be used. The rules and regulations in the Act discourage any misuse of funds and ensure that all departments are held accountable to the highest standards of financial management.
Restricts the Ability to Grow Debt
The Act limits the ability of Crown corporations to borrow money. These organizations must first receive approval from the Minister of Finance. Restricting the ability to borrow large sums of money further protects public interests from unnecessary expenditures and potential fraud.
Consequences of Not Complying With the Financial Administration Act
The FAA is a complex legislation requiring close attention to detail. As such, compliance takes dedicated effort and a thorough review of internal policies. Failure to comply with the regulations in the Act could lead to severe repercussions. For example, the offending person may face suspension without remuneration.
Fraud against the Crown carries much harsher penalties. It sets a threshold of $5,000 to determine the severity of the punishment. For example, if the value of the fraud amounts to less than $5,000, the individual may face a fine of less than $5,000 and no more than five years in prison. However, if the value of fraudulent activity surpasses $5,000, that person could face higher fines and up to 14 years behind bars.
The Role of Capturing and Archiving Communications
Crown corporations can significantly reduce their exposure to compliance risks by automating the capturing and archiving of communications. Securely storing emails, chats, text messages, and relevant phone calls can make it easier to comply with investigations or requests for information. These companies also stand the best chance of proving their innocence if accusations surface.
Regularly reviewing archived data can also provide valuable insight into potential threats to compliance. Whether this stems from individual actions or policies that need changing, managers can take the necessary steps to resolve these issues before they become significant problems that could lead to public scandal and jail time.
LeapXpert makes it easy for organizations worldwide to record and safely store corporate and government communications over instant messaging applications. We have become a trusted source for local governments and large corporations. Book a demo to see what we can do for your organization or agency.