Source: https://oag.parliament.nz/2010/ministerial-spending/part5.html
Timestamp: 2020-07-10 03:45:35
Document Index: 736660252

Matched Legal Cases: ['art 5', 'art 5', 'art5', 'art 2', 'art 7', 'art 3']

Part 5: Are the rules in the Executive Determination workable and fit for purpose? — Office of the Auditor-General New Zealand
Part 5: Are the rules in the Executive Determination workable and fit for purpose? How the Department of Internal Affairs manages spending that could give personal benefit to Ministers. https://oag.parliament.nz/2010/ministerial-spending/part5.html https://oag.parliament.nz/@@site-logo/logo.png
The previous Part looked at how well the overall support arrangements work. In this Part, we look at the next layer down – the detail of the rules in the Executive Determination. The Executive Determination is made by the Minister Responsible for Ministerial Services, with advice from Ministerial Services.
We look at whether the way the Executive Determination is written creates rules that are workable and fit for purpose. In particular, we discuss:
the purpose and legal status of the Executive Determination;
links between the Executive Determination and the appropriations within Vote Ministerial Services;
the principles in the Executive Determination;
domestic travel entitlements;
operational resources; and
We discuss the relationship between the Executive and Parliamentary Determinations, because Ministers receive many entitlements under the Parliamentary Determination. The Executive Determination provides them with additional or alternative entitlements to support their needs as Ministers. The terms of the Executive Determination have been deliberately designed to mirror the parliamentary entitlements and processes.
The purpose and legal status of the Executive Determination
To assess whether the Executive Determination is workable and fit for purpose, we first had to establish what its purpose is. That proved to be surprisingly difficult.
The three systems in the overall support arrangements and the administering authorities have different legal foundations and history. The Remuneration Authority and the Parliamentary Service were both created by legislation, which prescribes their role and activities. They cannot properly act outside their legislative authority.
In the case of the Parliamentary Service, the Parliamentary Service Act 2000 links the description of the services to be provided with the official direction issued by the Speaker (that is, the Parliamentary Determination). Therefore, as a matter of law, the Parliamentary Determination is a comprehensive statement, or code, of what support can be provided. The appropriations that authorise spending also link to the Parliamentary Determination, and so reinforce this restriction.
The Ministerial Services situation is different. As explained in Part 2, Ministerial Services is part of the Department. The Department is part of the Crown and does not have or need legislative authority for most of its ordinary activity. Ministerial Services does not have (or need) specific legislation supporting its work or enabling it to fund the ordinary business expenses of Ministers and their staff.
When the overall support arrangements were amended in 2002, some parts of the previous allowance system that had been administered by the Higher Salaries Commission were moved to the Ministerial Services system. That change was achieved by creating a new mechanism that mirrored that being used in the parliamentary system – a determination by the responsible Minister setting out the entitlements and expenses to be paid.
We have already explained that, in the parliamentary system, the Parliamentary Determination provides a comprehensive legal statement of the support the Parliamentary Service will provide. It has no legal ability to do more than is set out in the Parliamentary Determination. However, this is not so in the ministerial system.
The Executive Determination sits on top of the Department's general legal capacity to provide support. It specifies some expenses that can or should be met from the public purse, but there is no legal constraint to stop the Department meeting other expenses as well.
From our research, it seems unlikely that this difference was fully appreciated at the time the change was made. In our view, the issue is important because the result is that aspects of the Ministerial Services system are legally confused. The Executive Determination appears to create rules and limits on spending, but there is no explicit prohibition on spending that falls outside those rules.
It is not clear how these apparent rules fit with the general capacity of the Department to provide support services for Ministers. The Determination covers some matters that are usefully specified, such as support for ministerial accommodation in Wellington, and some matters that are straightforward business expenses, such as the costs of travel on ministerial business. This ambiguity about the difference between general business expenses and matters that need to be separately specified for some reason is most apparent when considering the scope for the Department to provide general operational resources.
In our view, the Executive Determination has ended up as an uncomfortable hybrid of administrative guidance, rules, and personal entitlements. It is not clear what it is trying to define or specify, and why. For example, the provisions on international travel can be read as doing no more than stating the process for getting international business trips approved. They are also written more as guidance than rules, and include discursive comments such as "overseas travel should usually be for 1 or more of the following purposes …" Yet the provisions are in the context of a set of personal entitlements, set out in delegated legislation, and linked to the appropriation, so they actually state legal rules.
We consider that the ambiguous status of the document and its rules contributes to the conflict that can sometimes arise in the administration of these rules and entitlements. The ambiguity lets people hold differing views on what they are "entitled" to, and what capacity there is for officials to question whether spending is appropriate or reasonable, especially when it is expressed as a ministerial entitlement.
In our view, the confusion is particularly apparent in relation to the "operational resources" entitlements, set out in part 7 of the Executive Determination. This part purports to state the rules for funding general support services, but the content of the provisions does not really specify concrete rules. The main provision simply states that Ministers "are entitled to use operational resources for the purposes of undertaking ministerial business". There is obvious overlap with the services that the Department has always just provided to Ministers as part of providing offices, staff, and general support with business activities and business expenses.
Many people told us that they find the associated Schedule useful, because it provides a clear list of things that can and cannot be paid for as operational resources. However, the effect of the more general provisions is not obvious.
In our view, Ministerial Services needs to address the problem of the legal status and purpose of the Executive Determination, and to consider from first principles which matters need to be specified in delegated legislation and which matters can be left to departmental policy and administrative discretion. A review of the Executive Determination needs to clarify:
Who makes final judgements on the boundaries?
Any general legislative changes that result from the Law Commission's review of the Civil List Act 1979 would provide a useful context for revisiting these questions about the legal status of the Executive Determination made under that Act. Even if more general reform does not eventuate, Ministerial Services should still clarify the status and purpose of the Executive Determination, as a first step in improving the system it administers.
Links between the Executive Determination and the appropriations
The rules in the Executive Determination link to other parts of the financial and administrative rules and processes in ways that are unusual.
The scope of the travel appropriation
The scope statement in the appropriation for Ministers' internal and external travel costs says that the appropriation is for "Payments for civil purposes for Members of the Executive's internal and external travel, pursuant to section 20A of the Civil List Act 1979." Section 20A is the provision that authorises the making of the Executive Determination, and so this statement effectively links the appropriation to the rules in the Executive Determination. The result is that any payments for domestic or international travel that are outside the rules in the Executive Determination are also outside the scope of the appropriation.
We question whether this link between the Executive Determination and the appropriations is helpful. We can see the potential for such a link to create unnecessary complexity and risk. This concern is given practical force by a point discussed in paragraphs 5.48-5.54: compliance with one of the rules in the Executive Determination on domestic travel costs cannot be checked in practice. There is no way of knowing whether spending on this type of travel expense breaches the legal rule or the appropriation.
In our view, the Department needs to review the terms of the relevant appropriation and the Executive Determination provisions to consider whether there are better ways of expressing these entitlements and the scope of the appropriation.
International travel on ministerial business
Clause 3.2 of the Executive Determination, on international travel, states that a Minister's international travel expenses will be paid if the travel is for ministerial business and the trip has been approved by the Prime Minister and Cabinet. The Minister may be accompanied by those authorised in the trip approval.
In some ways, this provision is unnecessary. If the travel is for business purposes, the Department would be able to pay for it without any further statutory authority, in the same way that it can pay for business travel for its own staff (so long as the travel was covered by an appropriation). It may be helpful for administrative purposes to set out a clear rule on how Ministers should go about getting approval for proposed travel, but it is not legally necessary.
Stating that the costs will be paid if the trip has been approved by Cabinet mirrors the equivalent provision in the Parliamentary Determination (which requires the approval of the Speaker and the relevant party leader). However, it also means that the Cabinet decision effectively defines the legal scope of what can be paid (for example, in relation to the total amount and the people whose costs will be paid). This is an unusual role for a Cabinet decision – these documents are usually administrative records rather than statements of the scope of legal authority.
The link to the Cabinet system creates a risk, because Cabinet or the Prime Minister can change the system at any time. For example, we understand that Cabinet has agreed that travel to Australia no longer requires Cabinet approval and is now approved by the Prime Minister alone. Changes of this kind could inadvertently result in unappropriated expenditure because of this link. In our view, this is an unnecessary risk.
In our view, the Department needs to review the Executive Determination as a whole. If this provision on international travel remains, the Department should consider whether there is a better way of defining what will and will not be paid for.
The range of appropriation authorities potentially available
We have also concluded that there is potential for confusion about the relationship between the various payments and the appropriation authorities for them. Much of this confusion stems from the Civil List Act 1979, which has four separate provisions dealing with appropriations for payments made under the Act. As the Law Commission has noted,8 none of these are particularly clear:
Section 2 states that there is permanent legislative authority for all "grants for civil purposes" under the Act, but does not explain which payments fit within that description.
Section 20B(4)(a) says that all services provided for in a Determination under section 20A, where the Determination incorporates another document by reference, are payable out of money appropriated by Parliament (and so seem to require an ordinary appropriation).
Section 20B(4)(b) says that all other services included in a Determination have a permanent legislative authority.
Section 25 is headed "Appropriation of money for benefits and privileges" but does not contain an appropriation authority. Instead, it states that there is no need for any additional statutory authority to make payments, if Parliament appropriates money to provide benefits and privileges to the listed office holders.
We reviewed the way in which the Department had referred to these provisions in the Estimates of Appropriation for Vote Ministerial Services, from 2000 to the present. That review did not clarify how these various Civil List Act provisions were being used in practice. The early budgets tended to invoke section 2, but section 25 was also sometimes cited.
The current appropriations for these parts of Vote Ministerial Services are ordinary appropriations and do not rely on any of the permanent legislative authorities. However, the Executive Determination, in clause 2.4, says that the Determination is a specification of some of the services to which section 25 applies. Given that the Determination is made under section 20A, there is probably no need to rely on section 25. We agree with the Law Commission that the provisions are unclear and need to be redrafted.
Our overall view on the appropriation issues
Overall, we concluded that the financial and legal authorities contained in the Civil List Act 1979, the Executive Determination, and the appropriations in Vote Ministerial Services are poorly aligned. Much of the difficulty stems from the unclear provisions in the Civil List Act.
In our view, it would be helpful if the legal and financial authorities created by the Civil List Act 1979 and the Executive Determination were clearer, and if these authorities were more directly aligned with the appropriations in the Vote. The Department can go some way towards addressing these concerns because it can advise on amendments to the wording in the appropriations and the Executive Determination. However, as previously noted, the main problems sit in the Civil List Act, which is not clear about what is covered by a permanent legislative authority and what requires an ordinary appropriation. Reform of this Act is a larger exercise that would require other agencies to be involved.
The principles in the Executive Determination
The ambiguity about the status of the entitlements or services provided, and about who is accountable for the use of funds, is also apparent in the guiding principles set out in the first part of the Executive Determination. We reproduce the three relevant clauses in Figure 5.
Clauses 1.3, 1.5, and 1.6 of the Executive Determination
1.3 What this document does
(1) The purpose of this document is to set out:
(a) the travel, accommodation, attendance and communications services available to members of the Executive and their families;
(b) [t]he principles to be applied by members of the Executive in their use of the publicly funded resources specified in this document.
1.5 Principles guiding interpretation and application of this document
This document must be interpreted and applied with the object of ensuring that the resource needs of members of the Executive in performing their roles and functions are met in the way that is most appropriate to circumstances as they arise while consistent with lawful authority and the principles set out in clause 1.6 (in particular the principles of value for money and cost-effectiveness).
1.6 Principles to be applied in use of publicly funded resources by members of the Executive
The following principles must be applied in the use of publicly funded resources by members of the Executive:
(a) The principle that expenditure must be reasonable for the circumstances and able to withstand tax-payers' scrutiny
This personal responsibility cannot be avoided, even though delegations may exist for others to incur costs on a member of the Executive's behalf.
Records about a member of the Executive's use of public resources should be kept to facilitate scrutiny if required.
(b) The principle that expenditure must be for official ministerial purposes only
(c) The principle that expenditure must be properly documented and supported with tax invoices/receipts
Members of the Executive must be open in the use of public resources and disclose any conflict of interest in utilising entitlements, whether that conflict is pecuniary, personal, familial, or as a result of any association.
(d) The principle that expenditure must be able to withstand audit scrutiny
The reasons for, and the circumstances surrounding, the use of public resources by members of the Executive should be publicly available.
The process by which funds are expended should be publicly known.
(e) The principle of value for money
When using public resources entrusted to them to perform their official duties, members of the Executive must seek the appropriate value for money in the circumstances.
Wherever reasonably practicable, members of the Executive should use the most cost-effective alternative available for utilising or accessing a particular entitlement. This needs to be balanced with the need for expediency.
Clause 1.3 describes the purpose of the document as being to set out:
the various services available to members of the Executive and their families; and
the principles "to be applied by members of the Executive in their use of the publicly funded resources specified in this document".
Clause 1.6 sets out six principles to be applied "in the use of publicly funded resources by members of the Executive".
Clause 1.5 gives particular emphasis to two of those principles (value for money and cost-effectiveness) and adds two other concepts: consistency with lawful authority, and meeting needs in the way that is most appropriate to the circumstances.
For the sake of completeness, we note that there is another principle in clause 1.2, that a member of the Executive is not entitled to receive duplicate entitlements under this Determination and the Parliamentary Determination. There are nine separate principles in these various clauses.
In our view, the content of the principles, and their status and effect, are confusing.
The content of the various principles and clauses is essentially the same as those in the Parliamentary Determination, but the headings are different. We agree that it is useful for the two documents to use consistent principles, but we find the changed headings confusing.
The headings and the content of these clauses also bring together a great many different concepts, in ways that are not particularly clear. For example, the heading to principle (c) in clause 1.6 talks about proper documentation and the need for invoices, but the text that follows discusses openness and the management of conflicts of interest. Principle (d) states that spending must be able to withstand audit scrutiny (which suggests that it is about proper documentation and appropriateness). Yet the text that follows is primarily about transparency in the reasons for individual transactions and the process for making and approving expenditure.
We also question whether principle (b) is helpful as it is currently written. It states that spending must be only for ministerial business, yet several of the entitlements in the rules that follow explicitly cover parliamentary business and personal activity as well as ministerial business.
We also consider it unhelpful in clause 1.5 to emphasise two principles as being more important. It suggests that there may be a hierarchy to the concepts in these two clauses. It is usually better to leave people to work out the balance between the various principles in the particular circumstances.
Overall, we consider that the content of clauses 1.5 and 1.6 is confusing. Given that these clauses are largely drawn from the Parliamentary Determination, Ministerial Services and the Parliamentary Service together need to review these principles to develop a more coherent set.
The status and effect of the principles
The relationship between the principles in the first part of the Executive Determination and the rules that follow is unclear. Normally, you would expect a set of principles of this kind to provide a coherent conceptual underpinning for the content of the document as a whole. That is, the rules would normally be a practical application of the principles to particular situations. That is not the case in the Executive Determination.
Rather, clause 1.3 says that the rules set out what is available to Ministers and the principles should guide how they use those entitlements and services. This suggests that the judgement of the individual members of the Executive (Ministers) will determine how the principles apply, as they make their daily decisions about when and how to use services available to them. Ministerial Services does sometimes question an item of ministerial spending on the grounds that it was unreasonable, or did not provide value for money, even if it was otherwise within the specific rules in the Determination. In our view, the Determination could make it clearer that the Department has this responsibility.
Making the administrative responsibilities clear
We note that the Parliamentary Determination includes a section on the processes for approving spending and the role of the administrators, as part of its statement of services and entitlements. That has been a useful development, because it has made explicit that the administrative responsibility for the Vote is a basic and necessary part of the arrangements. It has removed much of the debate about whether it is appropriate for officials to question the actions and judgements of MPs. It helps make clear that officials can and should apply their judgement to whether spending is reasonable, as well as checking whether it is within the rules.
In our view, the Department needs to consider whether an equivalent section on procedure and administrative responsibility should be included in the Executive Determination, along with reworked principles. The aim would be to put beyond debate the respective responsibilities of Ministers, staff working in Ministerial offices, and the Department's financial and administrative staff.
Domestic travel entitlements
When we looked at one Minister's expenditure, in the first part of this inquiry, we identified some practical problems with the rule on domestic travel expenses. There are two main ways in which the rule is effectively unable to be enforced.
The daily spending limit cannot be checked
First, the daily limit on travel expenses cannot be checked or applied in practice. We are aware that, after we raised this concern in our report on the first part of this inquiry, Ministerial Services emphasised to senior private secretaries that it is their responsibility to monitor this rule. Ministerial Services also asked us to consider the issue further in this second part of the inquiry.
We cannot see how senior private secretaries can monitor this rule in practice. The rule sets a daily limit for accommodation, meals, and other incidental expenses. The information on these different types of expenses comes through several different processes and at different times. For example, accommodation costs are often booked through the travel office and are paid on invoice. Meals and other incidental costs can be paid for with a credit card. These different payment methods mean that the senior private secretary will not usually be able to put together all the relevant information to assess whether daily spending is within the limit.
We discussed this with senior private secretaries, who confirmed that they cannot and do not attempt to check on this limit in practice. Some had it in the back of their minds, but more as a general alert to be wary of costs that were higher than usual.
The finance team does not bring the information together in this way either, so it does not check compliance with this rule. Nor does the Assistant General Manager, who is formally responsible for approving the spending. Instead, he too uses his knowledge about normal costs for meals and accommodation to assess the reasonableness of the individual items. We have seen evidence that the accommodation and meal costs are checked for reasonableness, and are sometimes queried. However, the overall spending cap in the current rule cannot be applied in practice.
In our view, the Department needs to review this rule and find a different way of expressing the daily spending limits. The rule should be written in a way that can be given administrative effect. Given the way the financial management processes and invoicing practices work, the simplest solution is likely to be to create separate rules for accommodation costs and other daily expenses. Each of those rules could still provide for actual and reasonable expenses to be met, up to a daily limit.
We note that an equivalent rule is in the Parliamentary Direction for the travel costs of the Speaker and the Leader of the Opposition. Although we have not looked at the Parliamentary Service system, it is possible that the same practical problem may arise. We encourage Ministerial Services and the Parliamentary Service to work together on this to develop new rules that can be applied in practice.
The rule on when a spouse's daily travel costs will be paid
Secondly, the criteria for when the travel costs of a Minister's spouse should be covered are unclear and cannot be readily checked by anyone reviewing the spending. The rule states that the daily limit will increase to cover the spouse's cost:
If the occasion involves the attendance of the person entitled [the Minister] and the spouse or partner of the person entitled at an official function –
The language is obviously somewhat dated and opaque. It has been carried over from the earlier Higher Salaries Commission determinations without significant change. The same language has also been carried into the Parliamentary Determination for the travel expenses of the Speaker and Leader of the Opposition. Effectively, it requires the Minister to have attended an official function in a ministerial capacity and for it to have been "necessary" for the spouse or partner to attend.
The main difficulties are that it is hard to know what type of event amounts to an "official function", the person reviewing the travel costs will often not have information about the reasons for the travel and what event the Minister was attending, and it is hard to know whose judgement applies to the question of whether the spouse or partner "necessarily attends".
The information difficulties in connecting travel costs to the Minister's diary mean that the financial management processes rely on the senior private secretary as the primary check for this criterion. If the senior private secretary has certified the costs, they are likely to be approved because the Assistant General Manager has little ability to check the details. The question of whether it is necessary for the spouse to attend is effectively left to the judgement of the Minister (presumably in discussion with their spouse).
In our view, these difficulties and ambiguities mean that the rule cannot be easily or effectively administered. Ministerial Services needs to reconsider the rule and have a more realistic and practical way of describing when it will be appropriate to meet the travel costs of a spouse or partner. If the best approach is to rely on the Minister's judgement for when it is appropriate for a spouse or partner to travel with them, then the rule should say that the Minister decides this.
Again, given that the same wording is used in the Parliamentary Determination, any change to this rule should be developed in collaboration with the Parliamentary Service.
We also note that the appropriation for travel expenses links to the provisions in the Executive Determination, and so any travel expense that is outside the rules in the Executive Determination will also be a breach of appropriation. As long as that connection remains, it is important that the rules are clear and workable. At present, it is not obvious how the Department could manage the risk of unappropriated expenditure arising from domestic travel.
The last part of the Executive Determination is headed "operational resources". It states that the part sets out the rules for funding the support services that are required to enable ministerial business to be carried out, but the rest of the part contains very little guidance or explanation.
In our view, this part of the Executive Determination is a good example of the confusion about the purpose and legal status of the document. This part is probably not needed in legal or formal terms. It also explains very little.
The most useful provision in this part appears to be the schedule that sets out a list of the types of goods and services that can and cannot be paid for out of these funds. However, we have already noted that the list overlaps with the list of items covered by the general expenses allowance given as part of remuneration. The guidance in clause 7.4 on the restrictions on the use of operational resources, which state that the resources cannot be used where provision has already been made elsewhere for those costs, does not help.
In our view, Ministerial Services needs to reconsider the purpose of this part and whether it is useful or legally necessary to attempt to specify the general operational resources available through the Executive Determination. It may be better simply to provide information and guidance for staff in the Handbook.
Our overall assessment of the rules in the Executive Determination
We have assessed whether the rules in the Executive Determination are workable and fit for purpose, having regard to the general principles we set out in Part 3.
In our view, there are problems with the document. In particular, the purpose and legal status of the various rules are unclear. One rule cannot be given administrative effect because it is not possible to assess spending against it in practice. The various statements of principles in the document are confusing rather than helpful. The rules also link in unhelpful ways to the Cabinet decision-making system and to the appropriations, which creates unintended legal risks.
We consider that the Executive Determination needs to be rewritten. Although the basic content of many of its provisions may be sound, the overall status and purpose of the document need to be made clear. Further thought needs to be given to which rules need to be stated in delegated legislation and which are better left to departmental policy and administrative discretion. The more detailed points we have identified also need to be addressed.
Ideally, this work would be done in conjunction with the development of changes to the Civil List Act 1979. These reforms need to be accompanied by a review of the relevant appropriations, so that there can be clear alignment between the different parliamentary authorities for this sort of spending.
8: Law Commission (July 2008), Review of the Civil List Act 1979, Issues Paper 8.