Part 1: Introduction

1.1
This report presents the findings of my inquiry into advertising expenditure incurred by the Parliamentary Service (the Service) in the three months before the 2005 General Election (the Election).

1.2
The Service provides a range of support services to members of Parliament (MPs) and parliamentary parties to enable them to participate in Parliament. This includes meeting the costs of advertising. Advertising by MPs and parliamentary parties is a sensitive area of expenditure for the Service.

1.3
The authority for the Service to incur such expenses is provided by appropriations within Vote: Parliamentary Service. An appropriation is a statutory authority by Parliament for the Crown to incur expenses or capital expenditure. Under the appropriations, the funds administered by the Service that are used for MPs’ and parliamentary parties’ advertising can be used only for a parliamentary purpose. They cannot legally be used for any other purpose.¹

1.4
My inquiry assessed the extent to which the Service had complied with appropriations within Vote: Parliamentary Service, in incurring advertising expenditure on behalf of MPs and parliamentary parties in the three months before the Election.

1.5
The rest of this Part discusses:

• concerns I have previously reported to Parliament about how well parliamentary advertising is administered; and
• the factors that made me decide to conduct this inquiry.

Concerns about the administration of parliamentary advertising

1.6
In 2004-05, I reviewed government and parliamentary publicity and advertising.

1.7
I undertook the review because I was aware that the nature and extent of publicly paid advertising had changed considerably since the introduction of the mixed-member proportional (MMP) system of representation, and the development of coalition government. It appeared that the systems, policies, and procedures used by government agencies to manage advertising resources could not ensure that the resources were always applied appropriately.

1.8
I was also concerned that information communication technology had progressed considerably, further stretching the abilities of administering agencies to monitor and control advertising activities.

1.9
I began my review in August 2004. In the course of the review, I met the leaders or representatives of six of the eight parliamentary parties to discuss my concerns about this area of public expenditure. In addition, all parliamentary parties were provided with the opportunity to comment on my report of the review, before it was finalised in 2005.

1.10
I was aware of the heightened sensitivity surrounding advertising matters in what was an election year. I wanted to make my view on advertising in the pre-election period clear. Some parliamentary parties had expressed a view that I should not present my report to Parliament before the Election, whereas others considered I should. I took advice from a number of quarters (including former senior parliamentarians), and decided the report should be presented before the dissolution of Parliament.

1.11
My report Government and parliamentary publicity and advertising (my 2005 Report) was presented to the House of Representatives (the House) on 21 June 2005.

1.12
I identified certain principles in my 2005 Report, which I had discussed with parliamentary parties and their leaders. These principles are widely accepted in other jurisdictions. The principles of democratic interaction and proper purpose are particularly relevant.

Democratic interaction

Dialogue between elected representatives and the public is a valid and fundamental aspect of democracy. MPs are expected to inform the public of their activities in Parliament, and to seek the public’s involvement in parliamentary processes. Publicity and advertising are, therefore, an integral part of representative democracy and accountability.

MPs and parliamentary parties may legitimately use public funds for publicity and advertising, to help them meet these expectations.

Proper purpose

Parliamentary and ministerial communications take place in a political environment. But taxpayers do not pay for political parties’ publicity, except to the extent that it derives indirectly from the proper conduct of parliamentary or ministerial business.

This is broadly consistent with the accepted position in New Zealand that the State does not fund political parties.²

1.13
My 2005 Report stated my concerns about the administration of parliamentary advertising expenditure:

• Publicity and advertising are important operational tools for MPs and parliamentary parties. They need to be recognised as such, and to be understood as products in their own right – not just operational expenses.
• Publicly funded publicity and advertising can be a valuable tool for those engaged in political activity. There is a need for clearly defined principles, rules, and standards to protect the public interest against the potential for public money to be misused.
• The current administrative framework has serious deficiencies that undermine its effectiveness.

1.14
In Part 5 of my 2005 Report, I set out a framework that would improve the administration of government and parliamentary advertising.

1.15
Part 6 of my 2005 Report commented specifically on advertising in the three-month pre-election period. Key points in Part 6 were:

• There are “benefits of incumbency” that enable Ministers of the Crown and MPs to achieve indirect party political benefit from publicity or advertising at public expense. That potential increases in the period leading up to a general election.
• The Members’ Handbook of Services,³ which includes guidelines for MPs about the advertising they can undertake, expressly excludes “party political, promotional or electioneering material for the purpose of supporting the election of any person” from the definition of “parliamentary business” in relation to such advertising.
• The basic expectations of the Members’ Handbook of Services are clear about not using parliamentary advertising for electioneering or related purposes. The potential for indirect political benefit requires risk management by Ministers and departmental chief executives.

1.16
When I presented my 2005 Report to Parliament, I said –

Any publicly funded advertising by political parties that does take place between now and the general election must be consistent with the existing rules, and will be subject to the oversight of the Speaker [of the House of Representatives].⁴

Why I undertook this inquiry

1.17
On 25 July 2005, the Prime Minister announced that the Election would take place on 17 September 2005.

1.18
In the period between the presentation of my 2005 Report to the House (21 June 2005) and the Election, there was considerable advertising by MPs and parliamentary parties that was paid for out of appropriations administered by the Service. Some of the advertising was completely appropriate and consistent with the appropriations.

1.19
However, some of the advertising appeared to promote the re-election of parliamentary parties and their MPs. This advertising took a range of forms, including:

• a pledge card that outlined to the public a parliamentary party’s commitments to future actions;
• pamphlets;
• newsletters from several parliamentary parties to various communities of interest, outlining the parties’ proposed actions if re-elected; and
• newspaper advertisements extolling the value and contribution of various parliamentary parties and their MPs to Parliament.

1.20
I was concerned that the Service, on behalf of the parliamentary parties, may not have appropriately incurred the expenditure associated with this advertising.

1.21
The Speaker referred to me for review an advertising complaint that she had received. I also received numerous enquiries from members of the public and some MPs. The correspondents all expressed concern about the political nature and large quantity of advertising produced by certain parliamentary parties. All correspondents asked that my Office inquire into the appropriateness of the expenditure associated with the advertising in question.

1.22
I decided to inquire into all spending of public money by MPs and parliamentary parties on advertising in the three-month pre-election period (from 16 June to 16 September 2005), to establish whether it had been appropriately incurred by the Service against the appropriations in Vote: Parliamentary Service.

1.23
I selected the three-month period because it:

• provided a discrete period for audit sampling;
• broadly corresponded with the three-month period under the Electoral Act 1993 during which some special rules apply to election expenses; and
• is generally understood as a period in which care must be undertaken with publicly paid advertising.

1.24
The advertising had also raised the concern of the Chief Electoral Officer. After the Election, the Chief Electoral Officer referred a number of the advertisements in question (including the pledge card noted in paragraph 1.19) to the Police for consideration of possible offences under the Electoral Act 1993. I decided to await the outcome of the Police process.

1.25
The Police announced on 17 March 2006 that no prosecution action would be taken under the Electoral Act in relation to the pledge card. I then resumed my inquiry.

The process this inquiry followed

1.26
My inquiry team began talking to the Service about our information requirements on 4 April 2006.

1.27
The appropriations within Vote: Parliamentary Service under which advertising expenditure can be incurred by MPs and parliamentary parties are:

• the eight Party and Member Support appropriations, which allow funding for each parliamentary party to “support its Leader’s office, research operations, Whip’s office and members’ parliamentary operations”; and
• the Members’ Communications appropriation, which allows funding for “members’ communications (voice and data) entitlements, and members’ use of stationery in Parliament”. All MPs are able to access communications services, including laser printers and stationery, funded under this appropriation.

1.28
The appropriations are administered by the Service, and give the Service authority to provide certain support services to MPs and parliamentary parties. The MPs and parliamentary parties do not manage the appropriations, and do not receive funding directly.

1.29
Because the inquiry focused on the period from 16 June to 16 September 2005, it included expenditure in two financial years – the 2004-05 financial year and the 2005-06 financial year. The total allocated to the Party and Member Support appropriations for 2004-05 was $14.079 million, and $14.102 million for 2005-06. The amount allocated to the Members’ Communications appropriation was $3.516 million for each of these financial years.⁵

1.30
My inquiry team established that the focus of the inquiry should be the Party and Member Support appropriations. There was nothing to link expenditure associated with laser printers and stationery under the Members’ Communications appropriation to any examples of advertising. Without such an audit trail, I was unable to draw any conclusions about the appropriateness of the expenditure. The advertising expenditure under the Members’ Communications appropriation was not considered in this inquiry.

1.31
Some support staff may have spent time designing and arranging advertising for MPs and parliamentary parties. Such support services are funded under separate appropriations within Vote: Parliamentary Service. Support staff time is not separately recorded, and I am not able to quantify and draw conclusions about the appropriateness of associated staff costs.

1.32
To conduct the inquiry, I required:

• data from the general ledger relating to all advertising expenditure incurred by the Service under the Party and Member Support appropriations within Vote: Parliamentary Service during the period from 16 June to 16 September 2005;
• copies of all invoices relating to this expenditure; and
• where possible, examples of the advertising to which the expenditure related.

1.33
The Service agreed to provide this material to my Office. However, as advertising is arranged by the parliamentary parties and MPs themselves, the Service did not hold examples of the advertising and had to ask former and current MPs for the information.

1.34
The Service provided collated material to my Office on 2 June 2006. The material consisted of a file for each member of the previous Parliament, and additional files relating to all other cost centres relevant to advertising conducted by the parliamentary parties (for example, Leaders’ budgets).

1.35
The auditors I appointed to conduct the annual audit of the Service provided me with assurance on the completeness of the financial information compiled for review.

1.36
The Service was unable to locate some of the material I required. A number of former MPs did not hold examples of advertisements that could be matched to invoices relevant to the review period. In some cases, party offices were unable to match the advertising to the invoices. The value of the missing examples was not large.

1.37
While the three-month pre-election period was the focus of the inquiry, we also asked the Service to review expenditure in the three months after the Election to identify any other expenditure relevant to the review period.

1.38
The Service also provided me with electronic files covering the expenditure incurred under all Party and Member Support appropriations for the 2004-05 financial year. The inquiry team extracted electronic records of all advertising expenditure incurred under Party and Member Support appropriations for the year from 1 July 2004 to 15 June 2005 inclusive. The inquiry team examined this advertising expenditure to identify any items costing more than $1,000. I took this step to ensure that there were no expenditure items incurred before the period of my inquiry that, because of their size, might require further investigation. I was satisfied that such an investigation was not warranted.

Determining whether advertising was within the scope of the appropriations

1.39
We determined whether the advertising expenditure incurred during the period of my inquiry was within the scope of the relevant appropriations. Part 3 of this report discusses in detail the method I used.

1.40
In summary:

• The inquiry team conducted a preliminary assessment of all advertising examples. They identified material that was clearly within the scope of the appropriations (there was a clear parliamentary purpose and no electioneering purpose).
• The inquiry team reviewed the examples considered to be possibly outside the scope of the appropriations again, to ensure that we had taken a consistent approach for all advertising, regardless of the MP or party involved.
• All examples considered potentially outside the appropriations were grouped by the type or method of advertising involved (for example, newsletters and advertisements for public meetings). These categories were reviewed again to ensure that we had taken a consistent approach for all advertisements of the particular type or method, regardless of the MP or party involved.

1.41
The Deputy Controller and Auditor-General and I then reviewed all the examples that were possibly outside the scope of the appropriations, and formed our provisional views.

1.42
The inquiry team also examined, for correctness, the general ledger entries and invoices for each of the advertising examples that were considered to be outside the scope of the appropriations. The invoiced amounts were then collated and attributed to the relevant parliamentary parties.

Advising the Service and the Speaker of my provisional findings

1.43
I then wrote to the General Manager of the Service, advising him that:

• my provisional findings indicated a breach of appropriation; and
• he could formally respond either after the Service alone had considered the matters I had raised or after seeking the views of MPs and parliamentary parties.

1.44
I also advised the Speaker (as the Minister responsible for Vote: Parliamentary Service) and the Secretary to the Treasury of my provisional findings, and provided them with an aggregate sum of the apparent breach of appropriation.

1.45
On 21 July 2006, the General Manager of the Service provided an initial written response to my provisional findings. After considering his response, I was not persuaded that I should change the method I had used or the provisional views I had formed.

1.46
I advised the General Manager of the Service of my decision on 26 July 2006. I also recommended that he inform affected MPs and parliamentary parties of my provisional findings, and provide them with an opportunity to:

• confirm the accuracy of the information collated by the Service that had been reviewed in the inquiry; and
• provide any other relevant information.

1.47
I asked the Service to respond to me with the outcomes of the consultation by the week of 21 August 2006. The Service provided me with the responses from MPs and parliamentary parties affected by my provisional findings on 25 August 2006.

1.48
In finalising this report, I fully considered the views of the MPs and parliamentary parties as provided to the Service. I also met with the leaders or representatives of five parliamentary parties who asked me to hear their concerns directly.

1.49
In a few cases, I changed my provisional view. In others, I did not. This is a normal part of consultation on a draft report. This report is based on the best information that could be provided to me.

1.50
The Service was provided with a draft version of my full report on 12 September 2006, and given until 19 September to comment. This deadline for comment was subsequently extended to 28 September 2006.

1.51
I note that it was unhelpful to the consultation process that some of my provisional findings found their way into the public domain. Nevertheless, this did not affect the conduct of my inquiry.

1: See Part 2 for an explanation of the appropriation system.

2: This position is clearly set out in the Government response to the Report of the Electoral Law Committee on the Inquiry into the Report of the Royal Commission on the Electoral System, I.20, 1989. Broadcasting time allocated during a general election campaign is the only form of State funding available to political – as opposed to parliamentary – parties.

3: The Members’ Handbook of Services provides MPs with information about their entitlements to services, and their responsibilities in obtaining and using those services. It is issued by the Service.

4: Media Statement, “Auditor-General’s report on government and parliamentary publicity and advertising”, 21 June 2005 (www.oag.govt.nz).

5: Appendix 1 describes the appropriations for the two financial years.