6.3 Departmental revenue, expenditure, assets and liabilities

6.3.1  Managing departmental expenditure

A key principle of the appropriation process is that expenses and/or capital expenditure may not be incurred without prior legislative approval. In addition to such statutory authority, all expenses and/or capital expenditure may be incurred only in accordance with the most recent Cabinet Office Circular on delegations for expenditure and limits on expenditure authority. The Imprest Supply and supplementary estimates processes are designed to allow some flexibility for government and departments to alter resource allocations while still maintaining prior parliamentary legislative approval and scrutiny.

Under these processes, no expenses or capital expenditure additional to, or in excess of, appropriation may be incurred without prior Cabinet approval. Any such approval is:

• for an appropriation for expenses or capital expenditure;
• to include these appropriations in the next set of Estimates; and
• to meet such expenses or capital expenditure from Imprest Supply.

An alternative mechanism, that of transferring an amount appropriated in a Vote for a specified class of outputs in that Vote to another class of outputs in that Vote, is permitted under section 26A of the Act. This transfer can be made, provided that it is the only transfer to that appropriation for the year, that the amount transferred does not increase the appropriation by more than 5%, and that the total amount appropriated for that financial year for all output expense appropriations in that Vote is not altered. An Order in Council is required to effect such a transfer.

Departments should ensure that there is sufficient authority for all expenses, capital expenditure and departmental net assets prior to expenditure being incurred. In instances where the original appropriation amount is expected to be exceeded, departments must ensure sufficient authority is obtained to use imprest supply prior to incurring expenditure. This applies to both departmental and non-departmental expenses and capital expenditure as well as departmental net assets.

While Baseline Updates are the normal process for a technical change without significant policy issues, if it is known that the expenditure will (or is likely to) be incurred before the Minister of Finance has approved the Baseline Update, and this will result in unappropriated expenditure, authority to use imprest supply must be obtained from joint Ministers or Cabinet prior to incurring expenditure. This ensures that when the expenditure is incurred, authority for the additional or new expenditure item is already in place, avoiding unappropriated expenditure.

6.3.2  Emergency expenditure requiring Minister of Finance approval

In the event a state of emergency or state of civil defence emergency is declared, or a situation occurs affecting public health or safety that the Government declares to be an emergency, section 25 of the Act provides authority for the Minister of Finance to approve the incurring of expenses or capital expenditure to the extent necessary.

The Government's policy on civil defence expenditure is contained in the National Civil Defence Emergency Management Plan, published by the Ministry of Civil Defence and Emergency Management.

The Government's policy on search and rescue expenditure is contained in the National Search and Rescue Manual published by the Ministry of Transport.

Once the Minister of Finance has given an approval under section 25(2) of the Act this enables expenses or capital expenditure to be incurred in accordance with that approval to meet the emergency whether or not an appropriation is available until the approval is revoked or the state of emergency to which the Minister's approval relates no longer exists.

The Minister's approval is likely to require all such expenses or capital expenditure to be managed and accounted for in accordance with requirements issued from time to time by the Treasury. These requirements include:

• departments proposing to make use of the approval must consult with the Secretary to the Treasury before doing so; and
• departments incurring expenditure without appropriation under the approval to record this expenditure separately from other approved expenditure.

6.3.3    Other expenditure requiring Minister of Finance approval

Section 26B of the Act provides authority for the Minister of Finance to approve the incurring of expenses or capital expenditure in the last three months of the financial year, in excess of appropriation up to the greater of $10,000 or 2% of the total amount appropriated for that appropriation. These approvals can be given in the financial year or not later than 3 months after the end of that financial year. Section 26B approvals can only be given in respect of expenditure that is within the scope of an existing appropriation. Expenditure that falls outside of the scope of an existing appropriation cannot be approved by the Minister of Finance but instead must be validated by Parliament in accordance with section 26C of the Act.

The Treasury must prepare a report to the Minister for each case of unappropriated expenditure; therefore details of any such expenditure must be supplied by the department concerned to the Treasury in accordance with the timetable that is notified annually to departments. The contents of Treasury's report is then used to prepare the Appropriations (Financial Review) Bill for confirmation of Orders in Council made under section 26A and of s26B approvals and validation of s26C instances of unappropriated expenditure or breaches of departmental net asset limits and to prepare the report to the House required by section 26C(2).

6.3.4  Foreign exchange exposure management

Section 65F of the Act provides that it is not lawful for the Crown (which includes a department of the Crown) to enter into a derivative transaction except as provided in any Act. Section 65G of the Act provides the Minister of Finance may enter into a derivative transaction if it appears to the Minister to be necessary or expedient in the public interest to do so. Section 2 of the Act provides a derivative transaction includes a foreign exchange transaction. A department's foreign exchange exposure management is conducted in accordance with its Departmental Foreign Exchange Exposure Management Policy, and operates on the basis of delegation from the Minister of Finance through the Treasury. The guidelines for the Management of Departmental Foreign exchange Exposure (first issued 1990, updated 2003) assist departments in preparation of their Foreign Exchange Policy Document.

If a department's Foreign Exchange Exposure Management Policy is not within the guidelinesit must be agreed between the Responsible Minister and the Minister of Finance.