Responsibility for financial management and reporting
The Act states that the chief executive of a department is responsible for the financial management and financial performance of the department, for complying with lawful directions made by their Minister (section 34), and for ensuring that the department complies with any legislative reporting requirements (section 35).
In both cases, these responsibilities are owed to the Responsible Minister for the department. Further, the chief executive must comply with any lawful financial actions required by the Responsible Minister or the Minister of Finance (section 34). Sections 34 and 35 thus help give effect to one of the objectives of the Act, which is to establish lines of responsibility for effective and efficient management of public financial resources (section 1A(2)(b)).
The Act focuses on external reporting. Treasury Instructions also note that chief executives have a responsibility to provide regular financial and performance information to the appropriate Ministers i.e. the Responsible Minister and the Ministers responsible for Votes administered by the department. They are also required to provide this information to the Treasury (via Ministers). These reports are used to monitor performance against plans throughout the year.
Other, more specific responsibilities in relation to departmental financial management, performance and reporting are set out elsewhere in the Act, or may be imposed by instruments allowed by the Act or other Acts. These include:
- delegations by the Secretary to the Treasury under section 71AA or delegations under the State Sector Act 1988
- Treasury requests for information (under sections 19, 26Z, 29A or 79)
- Treasury Instructions (under section 80)
- Minister of Finance Instructions (under section 80A), and
- regulations (under section 81).
A variety of instruments are used to govern the operation of bank accounts. The Act establishes requirements in relation to Crown, departmental and trust money bank accounts. It states that departments may operate Departmental Bank Accounts at banks permitted by the Treasury and in accordance with any directions given by the Treasury (sections 65S and 65T). Departments require a delegation from the Secretary to the Treasury to operate a Crown Bank Account. In addition, Treasury Instructions establish requirements in respect of banking arrangements.
The following table explains the purposes for which most Treasury Instructions, Minister of Finance Instructions and regulations are be issued. Some of these powers are limited to departments, others to departments and Offices of Parliament and others apply to all entities in which the Government reporting entity has an interest.
| Treasury Instructions, Minister of Finance Instructions and Regulations | Tsy Inst | MOF Inst | Regs |
|---|---|---|---|
| requiring information (section 81(1)(a)) | x | x | x |
| prescribing the processes and data standards to be used when supplying information (section 81(1)(ab)) | x | x | |
| prescribing minimum requirements concerning the publication of information (section 81(1)(ac)) | x | x | |
| prescribing particular accounting policies and financial statement representations (section 81(1)(b)) | x | x | x |
| prescribing non-financial reporting standards and the form of such information (section 81(1)(ba)) | x | x | |
| specifying the types of guarantees or indemnities that may be given by departments on behalf of, or in the name of, the Crown (section 81(1)(bb)) | x | ||
| prescribing the terms and conditions or any other matters that must apply to guarantees and indemnities given by departments on behalf of, or in the name of, the Crown (section 81(1)(bc) and (bd)) | x | x | |
| regulating the collection, receipt, custody, issue, expenditure, control and management of public money or trust money (section 81(1)(c) | x | x | x |
| regulating the accounting and financial management and control procedures of the Crown (section 81(1)(d)), and | x | x | |
| regulating the custody and control by the Crown of public securities and securities representing the investment of public money; and providing for the appointment of custodians of such securities and prescribing their functions, duties and powers (section 81(1)(e)). | x | x |
Departmental chief executives are also expected to ensure their departments comply with financial management or reporting decisions made by or under the authority of Cabinet, which are usually set out in Cabinet minutes, Cabinet Office circulars, or Treasury circulars. For example, periodic Treasury circulars specify the information required by the Treasury to meet its reporting obligations under the Act.
Certain sensitive or significant types of transactions may require separate and specific Ministerial or Cabinet authorisation even if those expenses may be incurred under existing appropriations. Cabinet Office circulars set out authorisations and financial limits that may be exercised by departments for these types of expenses and capital expenditure.
Two examples of specific financial management responsibilities which have arisen from decisions made by Cabinet include management of risks, and more specifically, management of foreign exchange exposures. The nature of these responsibilities are set out in the table below.
| Responsibility | Explanation |
|---|---|
| Risk management |
The Government needs to know what risks it is exposed to, and the potential impact of these risks on its fiscal position. The Government therefore expects departments to have systems in place which will assist them in:
|
| Foreign exchange exposure management | Chief executives are responsible for managing a department’s foreign exchange exposure in accordance with its Departmental Foreign Exchange Exposure Management Policy. The Treasury has produced guidelines for the management of such exposure (available on Treasury’s web site at www.treasury.govt.nz/publicsector/fxexposure/). |
Treasury Instructions and Circulars are available on the Treasury’s website at www.treasury.govt.nz/instructions and www.treasury.govt.nz/circulars/.
Cabinet Office Circulars are available on the Cabinet Office’s website at www.dpmc.govt.nz/cabinet/circulars/index.html.
The Act requires that departments produce forecast financial statements and other information about their operations prior to the start of each financial year in their reporting on future operating intentions (sections 38 and 43) and at the end of each financial year in their annual reports (section s 43 to 45).
The Act further reinforces the chief executive’s responsibility by requiring the chief executive to sign explicit statements of responsibility that must be included in external accountability documents such as the statement of intent and departmental annual report (sections 42 and 45C).
The statements of responsibility highlight a chief executive’s responsibility to:
- establish a system of internal control designed to provide reasonable assurance as to the integrity and reliability of financial reporting (section 45C(1)(b)). A system of internal control is intended to safeguard departmental assets and ensure that all financial resources are used in accordance with legislation, appropriation and financial delegations. Departmental policies and procedures in relation to items such as travel and capital expenditure should form part of the system of internal control
- ensure that the department’s forecast financial statements and operating intentions are consistent with appropriations (section 42(2)(b)), and
- ensure that the accounting system produces information on which the chief executive can rely in accepting responsibility for the information in the financial statements.
