Part 2: Parliamentary authority for public expenditure

Advertising expenditure incurred by the Parliamentary Service in the three months before the 2005 General Election.

2.1
In New Zealand, Parliament is sovereign. Ultimately, Parliament provides all authority to spend public money. It does this through appropriations.

2.2
Under the Public Audit Act 2001, the Controller and Auditor-General must audit the appropriations administered by departments, to establish whether expenditure has been incurred within the authority provided by Parliament.

2.3
Unauthorised public expenditure is a serious matter.

2.4
In this Part, I discuss:

Public finance principles

2.5
Public expenditure occurs within a framework dominated by two important principles:

  • the principle of appropriation; and
  • the principle of lawfulness of purpose.

The principle of appropriation

2.6
The requirement that public money may be expended only under parliamentary authority is a fundamental principle in New Zealand law.1 The principle arises from the Bill of Rights 1688, and is restated in the Constitution Act 1986 and in the Public Finance Act 1989.

2.7
Article 4 of the Bill of Rights 1688 contains the pre-eminent statement of Parliament’s sovereignty over the spending of public resources −

Levying money — That levying money for or to the use of the Crowne by pretence of prerogative without grant of Parlyament for longer time or in other manner then the same is or shall be granted is illegall.

2.8
Section 22(c) of the Constitution Act restates the principle −

22. Parliamentary control of public finance—

It shall not be lawful for the Crown, except by or under an Act of Parliament,—…

(c) To spend any public money.

2.9
Sections 4(1) and 5 of the Public Finance Act express the principle in the language of accrual accounting −

The Crown or an Office of Parliament must not incur expenses or capital expenditure, except as expressly authorised by an appropriation, or other authority, by or under an Act [section 4(1)].

The Crown or an Office of Parliament must not spend public money, except as expressly authorised by or under an Act (including this Act) [section 5].

2.10
The system of appropriations is a cornerstone of our Westminster-style parliamentary system. It is the primary means by which Parliament authorises the Executive and the Speaker (for the parliamentary agencies) to use public resources. Its purposes are to ensure:

  • that Parliament, on behalf of the electorate, has adequate control over how public resources are used; and
  • that those using the resources are held accountable for how they have applied the resources.

2.11
Although the requirements and procedures relating to appropriations are set out in the Public Finance Act, the appropriations themselves are made through Acts of Parliament (usually three each year) that bear the name of an Appropriation Act. Descriptions of the appropriations are listed in the schedules of such Acts. Detailed information about the appropriations is included in the Estimates of Appropriations (the Estimates). The Estimates are presented to the House on Budget day in conjunction with the introduction of the main Appropriation Act for that year.

2.12
There are three elements to an appropriation. It specifies:

  • the maximum amount of expenses or capital expenditure that can be incurred;
  • the scope (that is, what the amount can be used for); and
  • the date on which the appropriation lapses (usually the end of the financial year to which the Appropriation Act relates).

2.13
Unappropriated expenditure occurs when expenses or capital expenditure are incurred:

  • without an appropriation;
  • in excess of the amount of an appropriation;
  • for a purpose outside the scope of an appropriation; or
  • after an appropriation has lapsed.

The principle of lawfulness of purpose

2.14
The principle of lawfulness of purpose includes, but is wider than, the principle of appropriation.

2.15
To be lawful, expenses or capital expenditure must be incurred in keeping with an appropriation. They must also be incurred in keeping with the lawful authority provided to the department to engage in the activity concerned. An appropriation by itself is not lawful authority to engage in a particular activity.

2.16
The Public Finance Act permits the validation of unappropriated or unlawful expenditure. Section 26C says that the incurring of any expenses without an appropriation or other authority is unlawful, unless it is validated by Parliament in an Appropriation Act.

The Controller function

2.17
The two principles discussed above come together in the exercise of a vital constitutional check on public expenditure – the Controller function.

2.18
The office of Controller originated centuries ago in the United Kingdom. The original purpose of the office was to receive and hold public revenues until they were issued, under the authority of Parliament, for the service of the State.2 The role later evolved into one of verifying that any release of public money to the Executive branch of Parliament was lawful and in keeping with an appropriation by Parliament.

2.19
The Controller function was adopted by the New Zealand Parliament in 1865. Changes were made to the Controller function in 2004 to modernise and strengthen it. The changes took effect from 1 July 2005.

2.20
The Controller and Auditor-General exercises the Controller function under sections 65Y to 65ZA of the Public Finance Act and section 15(2) of the Public Audit Act.3 The main features of the Controller function are:

  • The Treasury must supply monthly statements to the Controller and Auditor-General, to enable the Controller and Auditor-General to examine whether expenses and capital expenditure have been incurred in keeping with appropriations or other authority.
  • The Controller and Auditor-General can direct a Minister to report to the House if the Controller and Auditor-General has reason to believe that any expenditure that has been incurred is unlawful or applied for a purpose that is not within the scope, amount, or period of an appropriation (section 65Z).
  • The Controller and Auditor-General can stop payments from a Crown bank account or a departmental bank account, to prevent money being paid out of the account that may be applied for a purpose that is not lawful or is inconsistent with any appropriation or other statutory authority (section 65ZA).

2.21
Although unappropriated expenditure may be identified through the Treasury’s monthly reports, such expenditure may also be identified through the annual audit or through exercise of the Controller and Auditor-General’s inquiry function.

2.22
The Controller function is concerned with whether the expenditure is lawful. To be able to form an opinion on this matter, the Controller and Auditor-General needs to be clearly aware of both:

  • the nature of the expenditure (that is, whether it will be within the amount, scope, and period of the appropriation); and
  • its lawfulness (that is, that the department has the lawful authority to incur the expenditure).

2.23
When considering whether expenses or capital expenditure fall within the scope of an appropriation or other authority, as Controller and Auditor-General I must consider the activity against the description of the scope of the appropriation set out in the Estimates and referred to in the relevant schedule of the Appropriation Act. These descriptions are characteristically brief and stated in broad terms. If the scope of an appropriation is unclear on its face, other sources of information – for example, the more detailed descriptions of purpose contained in the commentary in the Estimates – can help to explain it.4

2.24
However, it is important to note that the Estimates are not part of an Appropriation Act except to the extent that the Appropriation Act expressly incorporates them.

2.25
As Controller and Auditor-General, I seek legal advice about the scope of the appropriations, and the legal authority a department is acting under, when establishing whether expenditure has been lawfully incurred.

Implications for the Parliamentary Service

2.26
From a public finance administration perspective, the Service is no different from any government department that uses public money.

2.27
Under section 7 of the Parliamentary Service Act 2000, the principal duties of the Service are to:

  • provide administrative and support services to the House and to MPs; and
  • administer, in keeping with directions from the Speaker, the payment of funding entitlements for parliamentary purposes.

2.28
Although the Service is not part of Executive government, it is deemed to be a department for the purposes of the Public Finance Act. It uses public resources under authority provided by appropriations contained within Vote: Parliamentary Service.

2.29
Under the Public Finance Act, the Speaker is the Minister responsible to Parliament for Vote: Parliamentary Service appropriations. This includes responsibility for any breaches of appropriation. The General Manager of the Service is the chief executive of the Service for the purpose of the Public Finance Act, and in this capacity is responsible to the Speaker for the financial management and performance of the Service. This includes the day-to-day administration of payments for advertising by MPs and parliamentary parties.

2.30
As the department administering the appropriations and exercising its functions under the Public Finance Act and the Parliamentary Service Act, the Service and its General Manager are responsible for:

  • the effective and efficient financial management of the Service, including the appropriations it administers;
  • ensuring that all expenditure against appropriations is within the amount, scope, and period of the appropriations, and is reported in accordance with the Public Finance Act;
  • ensuring that sufficient internal controls exist to provide reasonable assurance about the integrity and reliability of the expenditure authorised by MPs and parliamentary parties and the consequent reporting on it; and
  • complying with any lawful financial directions of the Speaker, including any specific rules or directions about how the appropriations are to be administered or what types of expenses can be incurred on the authority of MPs, consistent with the amount, scope, and period of the appropriations.

2.31
Under the Public Audit Act, I am the auditor of the Service. In this role, I am responsible for auditing the compliance of the Service with Vote: Parliamentary Service appropriations, and acting, using the Controller function, should I identify unlawful expenditure.

1: See McGee, David (2005), Parliamentary Practice in New Zealand, third edition, Wellington, page 443.

2: See Jennings, Ivor (1961), Parliament, second edition, page 323.

3: The joint understanding and expectations of the Treasury and the Office of the Auditor-General of the role and procedures associated with the Controller function are set out in the Memorandum of Understanding between the Treasury and the Office of the Auditor-General: Controller Function (known as the Controller Protocol). The Controller Protocol is available on the Treasury website (www.treasury.govt.nz).

4: McGee, David (2005), Parliamentary Practice in New Zealand, third edition, Wellington, page 480.

page top