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A Guide to Appropriations - November 2013

Unappropriated Expenses and Capital Expenditure and Unauthorised Capital Injections

  • Expenses and capital expenditure that exceed the appropriated amount, fall outside the scope of the appropriation, are not in the prescribed period or are not covered by an appropriation at all have not been appropriated by Parliament and are therefore unappropriated.
  • Capital injections made without authority under an Appropriation Act (or approval under s25A PFA 1989) are unlawful unless validated by Parliament in an Appropriation (Financial Review) Act.
  • Several remedies exist under the PFA 1989 for a situation of unappropriated expenditure or unauthorised capital injections.
  • Treasury releases a circular each year detailing the deadlines that departments need to meet for each of these remedies.
  • The Auditor-General also exercises a controller function (see page 21) to monitor the compliance of departments with appropriations.

Order in Council (s26A PFA 1989)

  • Ideally, unappropriated expenditure should be met from existing resources within the vote.
  • Under s26A of the PFA an Order in Council may transfer resources between output expense appropriations within a single vote, so long as the transfer does not increase the recipient output expense appropriation by more than 5% and the Order in Council is made prior to 30 June.
  • A department must still obtain authority to incur expenses in advance of the Order in Council. As the Order in Council is unlikely to be made until near the end of June, departments need to seek interim authority under Imprest Supply.
  • Only one transfer can be made to an appropriation each year.
  • Transfers cannot be made from MYAs, PLAs and RDAs.

Minister of Finance Approval (s26B PFA 1989)

  • The Minister of Finance may approve expenses or capital expenditure in excess of appropriations within the following limits:
    • expenditure must be within the scope of an existing appropriation
    • the expenditure in excess of the appropriation must be incurred in the last three months of the fiscal year, and
    • the cumulative total of such approvals for a single appropriation may only be up to the greater of $10,000 or 2% of the appropriation.
  • Where possible, departments should seek approval before the expenditure is incurred.
  • If adequate justification exists, it is possible to gain a retrospective approval from the Minister of Finance. This should be avoided though as the expenditure will be illegal at the time that it is incurred. If the justification is not adequate, validating legislation under s 26C will be required.
  • Unlike an approval under s26A this approval is only a 1 step process. Therefore Imprest Supply is not required as the Minister of Finance's approval is final.
  • This approval cannot apply to breaches of capital injection authorities.

Interim Authority under Imprest Supply

  • If a potential breach of appropriation is identified in advance and does not meet the criteria for approval under s26A or s26B, then a department should seek interim authority under Imprest Supply in advance of the expenditure being incurred.
  • Anticipated breaches in the following areas should seek interim authority under Imprest Supply:
    • Capital injections that have not been authorised in an Appropriation Act or that are in excess of such authority.
    • Expenses or capital expenditure outside the scope of an appropriation (ie, where no appropriation exists).
    • Expenses or capital expenditure in excess of the amount of an appropriation where the use of s26A or s26B is not appropriate.
  • Interim authority under Imprest Supply usually requires Cabinet approval unless it falls within an authority joint Ministers have from Cabinet.

Validating Legislation (s26C PFA 1989)

  • Validating legislation is the most serious remedy for unappropriated expenditure and should be used only when none of the other options is available.
  • Validation provides retrospective approval for:
    • exceeding capital injection authorities
    • expenses or capital expenditure outside the scope of appropriation (ie, where no appropriation exists), or
    • expenses or capital expenditure in excess of the amount of an appropriation that is not able to be addressed through the other remedies.
  • It is important to note that, if an appropriation has been exceeded during the year (either in respect of amount or scope), and a department has subsequently sought a change in the appropriation, this change only applies for the appropriation going forward. The initial breach must be validated (usual course of action) or approval obtained from the Minister of Finance under s26B PFA 1989.
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