Part 5: Financial planning of Crown entities
5.1
It is important that responsible Ministers receive clear advice about the robustness of each Crown entity’s financial planning. This includes advice about each entity’s funding and whether:
- the financial planning provides a suitable base for monitoring the entity’s financial performance;
- the work the entity is doing (or proposes to do) provides value for money; and
- there are any concerns about the Crown entity’s financial planning that need to be addressed.
5.2
When we refer to financial planning in this Part, we mean the budgetary information that each Crown entity prepares and uses to make decisions. This includes information that an entity presents in its SOI about the work it plans to carry out and how much this will cost.
5.3
In this Part, we describe funding arrangements and budget bids for Crown entities. We discuss:
- the scope of the departments’ responsibilities for reviewing the financial planning of Crown entities;
- the work that the departments carried out to review the financial planning of Crown entities;
- how MCH and MED provided advice to Crown entities on budget bids; and
- DIA’s review of the fire service levy.
Key messages
5.4
It was not clear what work the departments were expected to carry out to review the financial planning of Crown entities, including reviewing whether the financial planning represented value for money. We recommend that the departments have clear information about when and how they intend to review an entity’s financial planning.
5.5
The departments seldom had clear information about the robustness of each Crown entity’s financial planning. This was partly because they often looked at only some aspects of each entity’s performance. This meant that the departments were often not well placed to provide Ministers with advice about the quality of each entity’s financial planning, whether the entity’s work would provide value for money, or whether the entity’s financial planning would provide a suitable base for monitoring the entity’s financial performance.
5.6
Some specific work that MED and MCH carried out was to review the budget bids from Crown entities. Some specific work that DIA carried out was to review the fire service levy. In some cases, it was difficult to tell how thoroughly each department carried out this work. The timeliness of MED and MCH’s reviews of budget bids could be improved with better planning.
Funding arrangements for Crown entities
5.7
The selected Crown entities were funded in various ways. Figure 2 sets out a summary of the funding arrangements.
5.8
Most of the selected Crown entities received funding from the Crown through appropriations that the relevant monitoring department administered. The main way their funding can be varied is by a change in the amount of the appropriation. Crown entities are usually able to make a budget bid for an increase in funding to carry out additional activities or for capital expenditure.
5.9
Our review of the departments’ files shows that the selected Crown entities that MED and MCH monitor have each made budget bids for additional funding at least once in the last three years, but the selected entities that DIA monitors have not.
5.10
DIA has reviewed the level of funding the New Zealand Fire Service receives through the fire service levy. We comment on this work in paragraphs 5.36-5.42.
5.11
DIA has also started reviewing fee regulations for the Office of Film and Literature Classification (OFLC). This may result in a change in the level of funding that OFLC receives. We have not reviewed the work that DIA has carried out looking at the fee regulations.
Figure 2
Funding arrangements for the selected Crown entities
| Monitoring department | Crown entity | Total income for the entity in 2007/08 | Funding arrangements |
|---|---|---|---|
| DIA | New Zealand Fire Service Commission | $294.5m | Main funding is by a levy on insured property |
| DIA | Office of Film and Literature Classification | $3.6m | Funded by revenue from the Crown and fees for services |
| MCH | Arts Council of New Zealand Toi Aotearoa (Creative New Zealand) | $45.0m | The main sources of funding are revenue from the Crown and grants from the New Zealand Lottery Grants Board |
| MCH | Broadcasting Commission (New Zealand on Air) | $116.2m | Main funding is by revenue from the Crown |
| MCH | Museum of New Zealand Te Papa Tongarewa | $43.7m | Main funding is by revenue from the Crown and commercial revenue |
| MCH | Sport and Recreation New Zealand | $105.3m | The main sources of funding are revenue from the Crown and grants from the New Zealand Lottery Grants Board |
| MED | Electricity Commission | $114.2m | Main funding is revenue from the Crown (Crown reimbursed through a levy on the electricity industry) |
| MED | New Zealand Tourism Board | $90.9m | Main funding ($75.1 million in 2007/08) is revenue from the Crown |
| MED | Securities Commission | $10.1m | Main funding is revenue from the Crown |
| MED | Standards Council (Standards New Zealand) | $8.5m | Self-funded – for example, by sale of documents, contracts for service, membership, royalty income |
| Total income | $832.0m | ||
Scope of the departments’ responsibilities for reviewing the financial planning of Crown entities
The departments’ responsibilities for reviewing the financial planning of Crown entities need to be clearer.
5.12
It was often difficult for us to determine what work the departments were expected to carry out, if any, to review a Crown entity’s financial planning and related matters – for example, whether the work the entity did, or planned to do, represented value for money. The departments’ output agreements, monitoring plans, or date schedules contained little or no information about the work that was expected.
5.13
Vague wording within output agreements – for example, “This output involves the provision of policy advice on matters relating to ... the performance of and appointments to Crown entities” – meant staff could put a variety of interpretations on what work, if any, needed to be done to review the entity’s financial planning.
5.14
Most of the Crown entities we selected receive millions of dollars of public money and/or are responsible for significant public assets. It should be very clear how the departments know about, or intend to check, the robustness of each entity’s financial planning.
5.15
In Part 2, we made a recommendation about the departments having clear information about their responsibilities. The departments should also have clear information about the work they carry out in reviewing each Crown entity’s financial planning.
| Recommendation 4 |
|---|
| We recommend that the departments have clear information about when and how they intend to review each Crown entity’s financial planning and related matters. |
Departments reviewing the financial planning of Crown entities
The departments reviewed the financial planning of Crown entities. The level of work was variable, and conclusions about financial planning were not always clear.
Reviewing the financial planning of Crown entities
5.16
Each department had carried out, or intended to carry out, some work reviewing the financial planning of the selected Crown entities, or related matters such as the effectiveness of each entity’s spending.
5.17
It was difficult for us to determine what the departments’ views were on the quality of each Crown entity’s financial planning, or whether the work the entity carried out represented value for money. This was partly because the departments’ reviews of financial planning were usually limited to specific aspects of an entity’s work and it was not clear what proportion of the entity’s work these aspects were.
5.18
We have not been able to form a view about the quality of the reviews that the departments have carried out. This is because:
- the scope, depth, and methodology of the reviews differed significantly – even within the same department;
- some work did not appear to be part of a considered programme of evaluation for each entity, but rather as isolated pieces of work;
- the departments have not always set out conclusions about review results; and
- at the time of our audit, some of the departments were only partly through their reviews.
5.19
We question whether the departments were able to provide assurance to Ministers that public funding of Crown entities would or did represent value for money. We could not see evidence that they had assessed this or drawn conclusions about it based on their reviews.
Advice about the financial planning of Crown entities
5.20
When the departments reviewed a Crown entity’s financial planning, they usually advised the Minister about the findings from their work.
5.21
Their advice sometimes, but not always, set out clear conclusions and recommended a clear course of action when necessary. We expect that advice on financial planning would always include this type of information.
Providing advice to Crown entities on budget bids
The departments need a clearer process for working with Crown entities on budget bids.
5.22
From a Crown entity’s perspective, there are two parts to the process of making a budget bid.
5.23
In the first part, the Crown entity prepares a bid and provides a final version of it to the relevant department. The final version of the bid must follow a standard template that is issued by the Treasury.
5.24
The Crown entity is not involved in the second part of the process, but the monitoring department is. The Treasury leads the second part of the process, which looks at all appropriations, including any changes resulting from budget bids. The department liaises with the Treasury during this part of the process. The results are decisions about how the Government intends to spend public money. The final decisions are set out in the Budget.
5.25
Usually, information in the Budget remains confidential until it is tabled in Parliament. However, for the 2009 Budget, Cabinet could authorise the chief executive of a monitoring department to provide the Crown entity’s chairperson or chief executive on a “budget-in-confidence-until-budget-day basis” about budget decisions that would directly affect the Crown entity’s planning and preparation of its SOI.
Planning for budget bids
5.26
In the last three years, the selected entities that MED and MCH monitor have made budget bids (see Example 2), but the selected entities that DIA monitors have not.
Example 2
MCH and MED’s reviews of Crown entities’ budget bids
| A subset of the financial planning that Crown entities may carry out, which departments need to review, is preparing information for budget bids. Our review of MCH and MED’s files showed that each of the selected entities that they monitor has made at least one bid for additional funding within the last three years. MCH and MED reviewed these budget bids from the entities. In several cases, it was difficult to determine how thorough the reviews were. However, we saw two cases where MCH analysed the information in the budget bid in detail. MCH and MED advised the Ministers about budget bids from Crown entities. Their advice included clear information to help the Minister to make a decision about the bid. |
5.27
MED and MCH did not have a clear timetable for when they needed to interact with Crown entities during the first part of the process of preparing a budget bid.
5.28
We saw only one case where MED had provided a clear timetable to an entity that set out when exchanges of information would need to happen so that the entity could prepare its bid on time. Even then, MED provided the entity with this information at short notice.
5.29
MCH carried out some work to advise entities about the necessary timing for preparing budget bids. This was through conversations, rather than written advice.
5.30
In our view, monitoring departments need to plan when information exchanges need to happen between their staff and the Crown entity so that budget bids are ready on time. In our view, departments should be able to carry out most of this planning, even if they are waiting for advice from the Treasury about templates, and about dates for the second part of the process.
5.31
Providing Crown entities with clear information about when information must be exchanged means that the entity’s board members and staff can plan for preparing and scrutinising budget bid information.
5.32
We saw one example where a Crown entity asked a department for information to help with budgets. The department could have anticipated the query and provided this information in a proactive rather than reactive way, if it had done some planning earlier.
5.33
We saw one example where a department had to review and comment on the budget bids from Crown entities at short notice. Clearer time lines and milestones for the first part of the process would have given staff more notice of when this needed to happen.
5.34
Representatives from four Crown entities told us that they found the procedure for exchanging information with departments about budget bids unclear. Their main concern was a lack of clarity about how decisions were made during the second part of the process. The confidential nature of Budget decisions means that ways of addressing this concern are limited. However, departments could prepare clear, written advice for Crown entities about how the second part of the process works in general, and advise the entities when they expect to provide them with advice on any bid they make.
The Department of Internal Affairs’ review of the fire service levy
Documenting the processes for reviewing the fire service levy would assist DIA’s staff.
5.35
The fire service levy is the main source of income for the New Zealand Fire Service Commission. The Minister of Internal Affairs must review the fire service levy each year.
Advice to the Minister of Internal Affairs about the fire service levy
5.36
In the period we looked at (2006, 2007, and 2008), DIA had reviewed the fire service levy each year and prepared advice for the Minister about it. Although DIA prepared the advice, its records did not always show that it had provided the advice to the Minister.
5.37
Section 48(4) of the Fire Service Act 1975 sets out matters that the Minister must have regard to when they review the fire service levy. The advice DIA prepared for the Minister showed that DIA knew of this requirement. In two of the three years we looked at, the advice set out this requirement explicitly.
Planning for reviewing the fire service levy
5.38
Regardless of whether the fire service levy is to be changed, DIA needs to carry out a number of steps to review the levy effectively. As part of this work, it will need information from the New Zealand Fire Service Commission.
5.39
We saw evidence that DIA was aware of the information it needed to collect, and collected some of this information early. However, DIA had not documented a process for collecting the information it required to review the levy, covering when and how it should collect the information. It would be useful for DIA to do so. This could help work planning for the year. If new staff had to work on reviewing the levy, a documented process would help them in becoming familiar with the process.
5.40
If a decision is made to change the levy, DIA will need to ensure that a number of further steps are carried out in a timely way for the change to be implemented.
5.41
In 2006 and 2007, DIA advised the Minister, in June of each year, to leave the levy unchanged.
5.42
A decision was made to increase the levy for the 2008/09 financial year. DIA prepared a plan of the steps it needed to follow to ensure that the levy was changed in a timely way.