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4.2.10. Budgetary implications of other bills

There is no legal provision which requires any bills having budgetary implications to be reviewed by the FEC or any other committee.

4.3. Budget execution

4.3.1. Apportionment of expenditure authority

Once an appropriation act or an imprest supply act has been passed, the departments will agree with Treasury on the timing of the passing of the required funding to Crown and departmental bank accounts that are operated by individual departments. Thereafter, the management of public expenditure is a two-stage process consisting of the incurrence of an appropriation by Parliament and the issue of money from the Crown or departmental bank to settle amounts owing. While these transactions can occur simultaneously, they may be years apart (as is the case for employee superannuation).

Departments incur expenses against appropriation, and must provide the Treasury with information each month on the status of each appropriation. This information is forwarded to the Auditor General within ten working days of the end of each month. The Auditor General may direct a responsible Minister to report on any breaches of appropriation if it is considered that any expenses or capital expenditure has been incurred in excess of or outside the scope of an appropriation.

In addition, if the Auditor General has reason to believe that any money to be paid out of a Crown or department bank account may be applied for a purpose that is not lawful or is outside the scope, financial limit or period of any appropriation or other authority from Parliament, he or she may direct the ministry or the Treasury to stop payments out of the relevant Crown or departmental bank account.

4.3.2. Cancellation of budget authority and other in-year expenditure controls

Appropriations are a permissive authority – there is no requirement imposed on the government to utilise the appropriations approved by Parliament. This means that the government does not require parliamentary authority to cancel appropriations. When it is considered prudent to reduce or cancel part of the appropriations, supplementary appropriation acts or imprest supply acts may be used.

4.3.3. Emergency spending, excess spending and contingency funds

Although spending above appropriations is stated to be illegal, the PFA also authorises the Minister of Finance to approve spending above

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appropriation. In particular, the Minister of Finance may approve the incurring of expenses or capital expenditures in the last three months of any financial year which are in excess, but within the scope, of an existing appropriation approved by Parliament. The limit on such excess expenditure is the greater of NZD 10 000 or 2% of the specific appropriation. Any such authorisation must be included in a new appropriation bill. A similar parliamentary approval is needed to validate any unlawful expenditure which the Minister of Finance does not approve. For any such expenses, explanatory statements are required in annual accounts of the government and those of the relevant department.

When there is a national disaster, a civil emergency or a public health or security situation requiring the government to declare an emergency, the PFA allows the government to incur emergency expenses or capital expenditures. No limit applies, but the amounts must be included in the annual financial statements of the Crown and be approved by Parliament in an appropriation bill. Typically, the costs of disasters are first accommodated through the use of an imprest supply act.

4.3.4. Transfer and virement of appropriations within the year

Appropriation is made for specific purposes such as purchasing or providing specific classes of outputs, making specific benefit payments or investing in specific entities or assets. Even if the authorised appropriation limit is not reached, the remaining amount of an appropriation cannot be used for another purpose. However, the PFA permits the Governor General, by Order in Council, to direct that an output expense appropriation in a vote be transferred to output expense in that vote if:

●The amount transferred does not increase an appropriation for a financial year by more than 5%.

●No other transfer to that appropriation has occurred during that financial year.

●The total amount appropriated for that financial year for all output expense appropriations in that vote is unaltered.

Such transfers authorised by the executive have to be approved by an appropriation act.

4.3.5. Cash planning and management of government assets and debt

All public money must be held in either a Crown or a departmental bank account (see below). This permits centralised Treasury management of the Crown’s cash position. The Treasury, under the authority given by the PFA, may invest any money held in a Crown bank account or any departmental bank account for such periods on such terms and conditions as it thinks fit. In order to maximise the long-term economic return on the Crown’s financial

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assets and debt portfolio, and to manage the risks to the taxpayer involved in the government debt, the New Zealand Debt Management Office (NZDMO) was established in 1988 by the PFA.3

4.3.6. Internal audit

Chief executives of departments are responsible to the responsible minister for the financial management of the department. Amongst their principal responsibilities, the SSA states that a chief executive of a department shall be responsible to the appropriate minister for the efficient, effective, and economical management of the activities of the department (s. 36). In fulfilling these duties, it is expected that a chief executive will put in place appropriate internal audit arrangements. Large government departments usually have internal audit groups reporting to the chief executive.

The Secretary to the Treasury is required to sign a statement of responsibility with each set of Crown financial statements that the system of internal control (that provides reasonable assurance that the transactions recorded are within statutory authority and properly record the use of all public financial resources of the Crown) has operated adequately throughout the reporting period. To provide assurance of this, the Treasury requires the audit service providers of government departments to undertake and report on the results of an annual departmental internal control evaluation.

4.4. Government accounting and fiscal reporting

4.4.1. The accounting framework

Both the PFA (s. 8) and the FRA (s. 5) require the government to produce actual and forecast financial statements in accordance with generally accepted accounting principles (GAAP), which describes the rules applied when preparing and presenting financial statements. GAAP requires the presentation of financial statements to be on an accrual basis, but also prescribes a cash flow statement. The government began the process of producing its financial statements in compliance with GAAP in 1989. Government departments were the first to move to accrual appropriations and accounting under GAAP. The first set of financial statements reporting on the Crown as a whole was prepared in 1991. The introduction of the FRA in 1994 changed the basis of the fiscal forecasts to accruals.

4.4.2. Government banking arrangements

The PFA specifies that all taxes and government receipts must be paid into a Crown bank account or departmental bank account. The Treasury may open, maintain, and operate the Crown bank account at a bank or banks that

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the Minister of Finance may direct. Accordingly, the Treasury has contracted a private bank to act as banker for most departmental and Crown activities. The amount held in the government bank accounts are “swept” into the Crown bank account with the Reserve Bank of New Zealand each night.

The PFA allows a departmental bank account or accounts to be opened, maintained, and operated by a department at such bank or banks as the Minister of Finance may direct. The Minister of Finance may give directions as to any terms and conditions under which any departmental bank account may operate and at any time close and suspend the operation of a Crown or departmental bank account. The following money is required to be paid into a departmental bank account:

●Such money as may be disbursed to the department by the Treasury.

●All receipts relating to departmental revenue.

●All receipts resulting from the sale or disposal of capital assets of the department.

4.4.3. In-year reporting to Parliament

The PFA requires the Treasury to prepare, as soon as practicable after the end of each month (except the first two and the last months) in each financial year, consolidated financial statements for the Crown for the period of the financial year to the end of the month concerned (s. 31A). These must be prepared according to GAAP. The PFA elaborates on content – financial statements required by GAAP, a statement of borrowings, and additional information and explanations. The law also establishes a six week publication lag (with a few exceptions).

Departments are required by Treasury instructions to provide monthly reports to their ministers and Treasury. These consist of actual against projected comparisons for: appropriations by type; an operating statement, cash flows and balance sheet; and net fiscal impact. Every quarter, departments are required to report the actual outputs produced, and the quality, quantity and cost of each, against projected output for that quarter.

4.4.4. Annual accounts and reports

The PFA requires the Treasury to prepare consolidated annual financial statements for the Crown for that financial year, in accordance with GAAP, as soon as practicable after the end of each financial year (s. 27). The major contents include: a statement of the financial position of the Crown (balance sheet); an operating statement; a statement of cash flows; a statement of borrowings, including a comparison between budgeted and actual borrowings; a statement of unappropriated expenses and capital expenditure; a statement of emergency expenses; a statement of trust money held by departments and