Flexibilities in appropriations
Compared to other countries, the New Zealand system provides a large number of detailed individual appropriations. Therefore the Public Finance Act and some other legislation provide for some flexibility for Governments operating within appropriations. For example, Ministers need to have some ability to respond to changing circumstances by reallocating resources during the financial year. The rules governing appropriations have to be flexible enough to respond to those changing circumstances, while still providing Parliament with control of the public finances. The legislative flexibilities available within the appropriation system are described below.
Imprest supply authority
As noted previously, imprest supply is a statutory mechanism that allows Parliament to provide the Government with the authority to incur expenses or capital expenditure in advance of appropriation by way of an Appropriation Act.
Imprest supply is required as the first Appropriation Bill for the year is not normally passed before the beginning of the financial year; and because the changing nature of Government activities and unexpected demands means it is impossible to adequately foresee all future expenses and capital expenditures.
Imprest supply is subject to certain internal controls. Cabinet approval is required to authorise the use of imprest supply and to agree its inclusion in a subsequent Appropriation (Supplementary Estimates) Bill before it can be used. The use of imprest supply is also monitored by the Controller and Auditor-General.
Interdepartmental output purchases
Where a department provides purchases services from another department, the expenses incurred by the second department in the delivery of those services can be incurred without further appropriation up to the amount of revenue earned from the second department (section 20).
This provision is intended to support a “managing for outcomes” approach by reducing compliance costs associated with projects which involve a number of entities. Only one appropriation is required for the overall output expenses associated with a project.
Revenue dependent appropriations
Subject to the prior authorisation of the Minister of Finance, departments may, without further appropriation, incur output expenses up to the amount of expected revenue to be received from parties other than the Crown (section 21). Effectively the constraint is variable, depending on the amount of revenue earned, rather than being a fixed amount. As such, revenue dependent appropriations are the main exception to the general rule that the amount of an appropriation is fixed.
This provision was initially restricted to outputs where independent competition existed. In 2004 it was amended so the only requirement is for the Minister of Finance to approve each class of outputs to which the provision is to apply. This approval is likely to be limited to circumstances where there is external pressure which limits price increases.
Transfers between classes of outputs
The scope limitation on output expenses means that unused output expense appropriations cannot be diverted for another purpose. In addition to the flexibility provided by imprest supply, the Governor-General can authorise transfers between output expense appropriations (section 26A). This provision can only be used when:
- the amount transferred does not increase any appropriation for output expenses by more than 5%
- no other transfer under this mechanism to that appropriation has occurred during that financial year, and
- the total amount appropriated for output expenses in that Vote is unaltered.
This mechanism is usually used only after the passing of the final Appropriation Act for the financial year.
Emergencies
When there is a national disaster or civil emergency the Government may need to act quickly. Sometimes the Government may want to use resources in a declared emergency for which there is no appropriation or other authority. In these cases the Government is able to incur expenses or capital expenditure without a prior appropriation (section 25).
No limit applies to such transactions, but details must be published in the Gazette. The amounts must be included in the Government’s annual financial statements and a subsequent Appropriation Bill so that Parliament can debate and approve them retrospectively. This mechanism is seldom used – typically the expenses and capital expenditures associated with disasters are accommodated through imprest supply.
Expenses or capital expenditure in excess of existing appropriations
The Minister of Finance also has a limited authority to approve expenses or capital expenditure outside existing appropriation limits that have been incurred within the last three months of the financial year (section 26B). Such items must be within the scope of an existing appropriation. For each appropriation the Minister can approve an amount up to the greater of $10,000 or 2 percent of the total amount appropriated for that appropriation. Such amounts must be included in a subsequent Appropriation Bill, usually the Appropriation (Financial Review) Bill for confirmation.
Unauthorised amounts
Unauthorised expenses or capital expenditure requires subsequent validation by Parliament in an Appropriation Act (section 26C). The Minister must present a report on expenses or capital expenditure incurred without appropriation which sets out the amount of each category of expense or capital expenditure and an explanation by the Minister responsible.
Unauthorised spending must also be reported in the annual financial statements of the Government and the annual report of the relevant department.
Ensuring compliance with appropriation terms
The Public Audit Act 2001 (section 15(2)) requires that the Auditor-General audit the appropriations administered by departments or Offices of Parliament. The audit of appropriations involves:
- determining whether transactions and events are appropriately authorised and within relevant appropriations
- testing whether an expense and or capital expenditure charged against an appropriation has been incurred for the purpose for which it was appropriated, and
- ensuring that expenses incurred are for lawful purposes.
This audit is an ex-post or “after the fact” audit and the assurance on this audit is provided to the House after the end of the financial year.
The Public Finance Act also contains measures to provide assurance that the Crown and Offices of Parliament are complying with appropriation terms on a timely basis during the year. These measures are known as the Controller function. Under this function the Controller and Auditor-General monitors the incurrence of expenses and capital expenditure against appropriations on a regular basis throughout the year and has powers to act if a breach has occurred or if there is reason to believe a breach will occur. The Act ensures that the Auditor-General has access to information and the power to exercise this responsibility.
The Act requires that the Treasury supply monthly statements from September of each year to the Auditor-General, to enable the Auditor-General to examine whether expenses and capital expenditure have been incurred in accordance with an appropriation or other authority such as imprest supply. The Auditor-General can also request information under the Public Audit Act 2001.
If the Auditor-General has reason to believe that expenses or capital expenditure have been incurred for a purpose that is not lawful or is not properly authorised, the Auditor-General can require that the relevant Minister report to the House of Representatives on the alleged breach (section 65Z).
The Auditor-General also has the power to stop payments from a Crown Bank Account or a Departmental Bank Account (section 65ZA).
The requirement for the Treasury to provide monthly reports on appropriations and the Auditor-General’s power to require a Minister to report on appropriation breaches were introduced in 2005. They replaced the previous Controller arrangements which involved a daily check on disbursements from a Crown bank account and a periodic Governor-General’s warrant. The changes retain the constitutional principle of an independent check on spending on Parliament’s behalf and the right to prevent payments from bank accounts, but now focuses more attention on obligations as they are incurred rather than as they are being settled.
