Part 2: The Act and the Auditor-General's role

The Local Authorities (Members' Interests) Act 1968: Issues and options for reform.

This Part summarises the Act, and our role in administering it.3

Summary of the Act

The Act provides rules about members participating in matters in which they have a pecuniary interest that come before the governing body or a committee of the local authority4, and about contracts between members and the local authority.

The Act has 2 main requirements:

  1. Section 6(1) provides that members must not vote or take part in the discussion of any matter before the local authority in which they have a pecuniary interest (other than one in common with the public), unless any of the statutory exceptions apply. We will refer to this provision as the discussing and voting rule. Breach of section 6(1) constitutes an offence, and a conviction results in vacation of office.5 The Act requires a member to declare any pecuniary interest at relevant meetings and for the minutes to record that declaration of interest.6
  2. Section 3(1) provides that a member of the local authority is disqualified from office who is concerned or interested7 in contracts with the authority under which the total payments made, or to be made, by or on behalf of the authority exceed $25,000 in any financial year, unless approval has been obtained from the Auditor-General. We will refer to this provision as the contracting rule. If the disqualification applies, it is an offence to continue to act as a member of the local authority.8

The Act has a long history. Its antecedents date back to 1885.9

The Auditor-General’s role

The Auditor-General is the auditor of all public entities.10 Our role in administering the Act encompasses several functions:

  1. deciding applications for exemptions from or declarations relating to the discussing and voting rule;
  2. deciding applications for approval of contracts worth more than $25,000 in a financial year;
  3. providing guidance to local authority members and officers, to help them comply with the Act in particular situations; and
  4. investigating and prosecuting alleged offences against the Act.

These are explained in turn.

The Act empowers the Auditor-General to grant an exemption or declaration in relation to the discussing and voting rule, in a limited range of circumstances.11 This allows a member to participate in a matter in which he or she has a pecuniary interest.

The Act also empowers the Auditor-General to grant approval and, in limited cases, retrospective approval, of a member’s interest in contracts, which has the effect of suspending the contracting rule in relation to that particular instance.12

We have taken a proactive role in recent years in raising awareness of the Act amongst local authority members and officers, and we encourage members to raise their queries with us before they cause problems. Accordingly, we now receive a large number of requests for advice about the Act. We also publish general guidance about how the Act works.13

The Auditor-General is the sole person permitted to prosecute alleged offences under the Act.14 A conviction of a member results in vacation of office, so we exercise our discretion to prosecute carefully. In any particular situation, it is open to us to form the view that, although an offence appears to have been committed, the circumstances do not warrant instituting criminal proceedings. We do not undertake a formal investigation into each complaint; many can be resolved following preliminary enquiries.

Most day-to-day functions are carried out by the Legal Team in the Office of the Auditor-General, but some decisions are reserved to the Auditor-General personally.15

3: In Part 4 of this report, we consider whether the Act needs to be retained at all, and discuss our understanding of the underlying rationale for, and principles of, the Act.

4: The Act applies to “local authorities”, a term which is defined to mean all the bodies listed or described in the First Schedule to the Act. In practice, most issues that arise concern district, city and regional councils, but the Act’s application extends to bodies outside “local government” as that term is usually understood.

5: Section 7.

6: Section 6(5).

7: This term means concerned or interested in a pecuniary sense: Hogg v Fowler (Controller and Auditor-General) [1938] NZLR 104.

8: Section 5.

9: See the Local Bodies Contractors Act 1885, Public Contracts and Local Bodies’ Contractors Act 1908, Local Authorities (Members’ Contracts) Act 1934, and Local Authorities (Members’ Contracts) Act 1954.

10: The term “public entity” is defined in section 5 of the Public Audit Act 2001. It includes all bodies subject to the Local Authorities (Members’ Interests) Act 1968.

11: Sections 6(3)(f) and 6(4). Under section 6(3)(f), we can grant an exemption from the discussing and voting rule if we are satisfied that the pecuniary interest is so remote or insignificant that it cannot reasonably be regarded as likely to influence the member when voting or taking part in the matter. Under section 6(4), we can grant a declaration that the discussing and voting rule will not apply if we are satisfied that applying the rule to this matter would impede the transaction of business of the local authority or would otherwise not be in the interests of the authority’s district or its electors or inhabitants.

12: Sections 3(3)(a) and 3(3)(aa).

13: See our publication Conflicts of interest: a guide to the Local Authorities (Members’ Interests) Act 1968 and non-pecuniary conflicts of interest, August 2004, ISBN 0-478-18121-3. We revise and republish this guide every 3 years.

14: Section 8.

15: We dealt with 132 distinct matters under the Act during 2002-03, 86 during 2003-04, and 106 during 2004-05. These figures include applications for approval of contracts; applications for exemptions and declarations; requests for written guidance; and complaints and investigations. They exclude informal telephone enquiries.

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