Part 1: Introduction

How the Department of Internal Affairs manages spending that could give personal benefit to Ministers.

In this Part, we explain:

  • the context for our inquiry;
  • the three systems for parliamentary and ministerial funding and remuneration;
  • related work done by us and others;
  • the focus of our inquiry; and
  • the structure of this report about our inquiry.

The context for our inquiry

In recent years, there has been considerable international interest in spending by members of Parliament (MPs), prompted in part by disclosures about parliamentary spending in the United Kingdom. There have also been regular calls in New Zealand for greater disclosure of information about parliamentary spending and activity.

In July 2009, the Speaker and the Prime Minister announced that expenses claimed by MPs and Ministers would be disclosed every three months, and directed the release of detailed information on spending during the previous six months. The information covered spending on accommodation costs in and out of Wellington, air travel, and surface travel costs. The Speaker and the Prime Minister stated that the disclosure "reflects a commitment by members of Parliament to be open and accountable to the people of New Zealand".

The information that has been released, in July 2009 and subsequently, has been closely scrutinised by the media and others. There has been much debate about the spending patterns revealed and about the nature of the entitlements that are provided. The debates have mainly been about the appropriate boundary between business and personal expenses and the reasonableness of some spending.

As a result of this information becoming publicly available, in September 2009 the Auditor-General was asked to inquire into the accommodation entitlements claimed by Hon Bill English. We published our conclusions in October 2009. We identified aspects of the rules and administrative support that were problematic, but decided that further inquiry by this Office was not warranted because the Prime Minister had already announced changes to the way accommodation support would be provided.

In early 2010, the release of further information led to public questioning about the line between personal and business spending in some ministerial offices. After separate requests from the Prime Minister, a Minister, and the Department of Internal Affairs (the Department), the Auditor-General agreed to carry out an inquiry. On 2 March 2010, the Auditor-General released terms of reference for our formal inquiry into types of spending in Vote Ministerial Services that provide, or have the potential to provide, personal benefit to a Minister.

The purpose of our inquiry was to:

  • audit the expenditure incurred by one ministerial office from November 2008 until February 2010;
  • review the rules, policies, and procedures to see whether they were appropriate and effective and identify any improvements that could be made; and
  • consider any other matters that the Auditor-General considered relate to, or arise from, the above.3

Our particular focus was on Ministerial Services, which is the business unit within the Department responsible for providing support to Ministers.

We published a report on the first term of reference on 30 March 2010. That report set out the general principles that apply to public spending where there could be personal benefit and our overall findings and conclusions, followed by detailed information about our audit of the ministerial office's spending. That report is included as Appendix 2.

This report addresses the remaining terms of reference. It contains our conclusions on whether the rules, policies, and procedures operated by Ministerial Services for ministerial spending are appropriate and effective. It also sets out our recommendations.

There have been other developments while we have been working on this inquiry. In particular, requests for official information have led to wide disclosures of information on credit card spending by Ministers of the Crown, chief executives of many government agencies, and local authority mayors and chief executives.

We have been asked several times to review or comment on some of this information, or the way in which individual organisations have managed the relevant spending. Therefore, we have included some general comments in this report on our expectations for managing spending with the potential to provide personal benefit (often called "sensitive expenditure") in the public sector.

The three systems for parliamentary and ministerial funding and remuneration

There are three related systems that together make up the overall arrangements for providing remuneration, allowances, and other support to Ministers and to MPs. Figure 1 shows these overall arrangements, the current legislative, rule-setting, and administrative processes, and the relationship between the three systems. It shows that the three systems are closely intertwined and that the relationships between the different elements are complex.

Figure 1
The three systems for parliamentary and ministerial funding

Figure 1.


In summary, the three systems are:
  • Remuneration: The Remuneration Authority sets salaries and an allowance for all MPs. The allowance is designed to cover a range of miscellaneous business expenses.
  • MPs' expenses: The Parliamentary Service, under the authority of an official direction from the Speaker, administers a range of entitlements and support services for all MPs, including support provided to Ministers in their parliamentary capacity (for example, the costs of constituency offices). The entitlements are set out in a document that we refer to as the Parliamentary Determination.
  • Ministers' expenses: Ministerial Services provides a range of support for Ministers, including the additional entitlements and support services that are provided for in an official direction from the responsible Minister. The entitlements are set out in a document that we refer to as the Executive Determination.4

In this report, we use the term "overall support arrangements" to describe this combined picture. We refer to each of the three parts of the overall arrangements as the "systems" administered by the Parliamentary Service, Ministerial Services, and the Remuneration Authority. Within each of those systems, we use the term "financial management processes" to describe the administrative policies and procedures that the administering agency has put in place.

Related work by us and others

Our previous work on parliamentary and ministerial issues

This will be the ninth public report in 10 years by an Auditor-General about spending on parliamentary and ministerial support. Our previous reports are summarised in Figure 2.

Figure 2
Our previous reports on parliamentary and ministerial matters

Members of Parliament: Accommodation Allowances for Living in Wellington: Interim report, March 2001, which examined the entitlements regime for members of Parliament and Ministers and the specific circumstances of two MPs (Ms Bunkle and Ms Hobbs). The main conclusions on the system were that responsibility across the different administering agencies was disjointed, the system was complex, unclear, and difficult to apply, communication was poor, and the internal control processes were inherently weak and relied on individual trust.
Parliamentary Salaries, Allowances and Other Entitlements: Final Report, July 2001, which built on the previous report and examined the overall regime for setting and administering salaries, allowances, and other entitlements for MPs and Ministers. It concluded that the arrangements at the time lacked transparency and involved too many parties and parallel regimes. In particular, they confused remuneration and expenses in a way that was inconsistent with normal practice.
ACT Parliamentary Party Wellington Out-of-Parliament Offices, May 2003, which looked at the rules and administrative approach on the resourcing and use of staff in out-of-Parliament offices, and the relationship between party, parliamentary, and personal interests. The report concluded that there were no clear rules or principles on the particular issue, and that the available administrative guidance was open to interpretation. The administrative approach that had been taken did not apply common sense and focused on the specific wording of the guidance rather than the substance of the arrangements.
Government and parliamentary publicity and advertising, June 2005, which looked at how different sources of funding were managed in government and parliamentary publicity and advertising. The report set out concerns that the arrangements and guidelines then in place were unclear and produced inconsistent results, did not support the development of best practice in procurement or communications techniques, and did not support transparency or accountability over the source and use of public funds.
Inquiry into Funding Arrangements for Green Party Liaison Roles, April 2006, which looked at the way in which liaison roles for a non-executive support party were funded through Vote Ministerial Services. The report discussed the complexity of funding staff positions that straddle the executive and parliamentary branches of government, given that each is funded by separate appropriations.
Advertising expenditure incurred by the Parliamentary Service in the three months before the 2005 General Election, October 2006, which looked at the way in which Vote Parliamentary Service funds had been used for advertising expenses before the general election. The inquiry found significant breaches of the appropriation, with funds used for advertising that amounted to electioneering. It concluded that the Service had been applying an incorrect interpretation of the scope of the appropriation, and that it had not been effectively discharging its responsibility for administering the Vote. It also commented that the accountability framework was confused and lacked transparency.
Auditor-General's decision on parliamentary and ministerial accommodation entitlements, October 2009, which looked at how parliamentary and ministerial accommodation entitlements were administered. It found that the parliamentary system for accommodation entitlements was opaque. It used confusing and potentially misleading language, the administrative and guidance documentation was unclear, and the checks in the system were not well understood. Similar comments could be made about the ministerial system, until it was changed while our work was under way. The report commented that the interface between the two systems was poorly explained and could create difficulties.
Auditor-General's inquiry into certain types of expenditure in Vote Ministerial Services: Part 1, March 2010, which set out detailed findings on our examination of spending in one ministerial office. The report concluded that some expenditure had been incurred that was outside the rules, because the Minister and his staff did not have a correct understanding of the rules. The problematic expenditure had all been approved without question, even when it was clear on the face of the documentation that the spending was outside the rules.

Alongside those major published reports, we have also dealt with an ongoing flow of other issues, both large and small, over many years. Most of the questions that commonly arise relate in some way to managing the boundaries between the different capacities in which MPs work and receive funding. The different systems at different times require MPs to distinguish between ministerial, parliamentary, party political, electioneering, and personal activity.

Major themes from this body of work over a decade have included concerns about:

  • rules that have developed over time and in a piecemeal way, and are not clearly grounded in principle;
  • a lack of clarity about the interaction between the legislative rules, the appropriation requirements, and accountability under the Public Finance Act 1989;
  • rules that are not easy to understand or administer;
  • unclear and inadequate guidance and training for staff;
  • complex and weak internal control processes causing confusion in a difficult operating environment; and
  • accountability structures that lack transparency.

Recent changes in the administration of Vote Parliamentary Service

Our 2006 report on election advertising spending in Vote Parliamentary Service identified many problems with the rules and administrative processes used by the Parliamentary Service. This affected the way in which MPs and parliamentary parties were able to spend public funds.

The Speaker and the Parliamentary Service carried out two major projects in 2007 to put in place new rules, in the form of a new Speaker's official direction, and new policies and procedures to support the practical financial management of the Vote. We discussed various aspects of these changes with the Service as they were being developed. In July 2007, the then Auditor-General wrote to the Speaker and the Parliamentary Service Commission confirming that we regarded both reforms as improvements that should be implemented as soon as possible.

There had been some concern that the new procedures might create an excessive administrative burden or restrict the autonomy of MPs. Our conclusion at that time was that:

The new procedures appear to strike a sensible balance in each area of spending to achieve suitable control without causing significant practical impediments to members of Parliament. In our view, the new procedures are a sensible and practical way of blending the responsibilities of the Service under the [Public Finance Act 1989] with appropriate recognition of the autonomy of members of Parliament, and the practical needs and risks attaching to different areas of spending.

Since then, we have had a number of opportunities to assess how well the new financial management processes are working, both in our annual audit work and when particular issues have arisen. We continue to regard the new processes operating in the Parliamentary Service as an improvement, and consider that they strike an appropriate balance between the administering agency's accountability for the use of the Vote it administers and the freedom of individual MPs to determine how they use their parliamentary resources.

Relevant reviews by others

Two other relevant reviews have been under way while we have been working on this inquiry:

  • The Law Commission has been reviewing the Civil List Act 1979, which involves considering aspects of the overall framework and structures for setting and managing remuneration (salary and allowances) for MPs and Ministers.
  • The Committee carrying out the fourth Triennial Review of Parliamentary Appropriations (the Appropriations Review Committee) has been assessing the adequacy of the funding and associated systems for Vote Parliamentary Service in particular. The Committee published its report in June 2010.5 It recommended a range of changes, including several that were relevant to our inquiry. In particular, it recommended greater separation between remuneration and business expenses, changes to travel and accommodation entitlements, and greater collaboration between the agencies on the parliamentary campus on matters such as information and communications technology.

We met with the people working on these reviews several times to understand any areas of overlap or common interest.

The focus of our inquiry

Given the recent improvements in the rules and supporting procedures in the Parliamentary Service system, and that the two other reviews were considering the more general aspects of the overall support arrangements, we focused our inquiry on Vote Ministerial Services and the system for funding support for Ministers. Our particular focus was spending that had the potential to provide personal benefit.

What we assessed

We have assessed as a whole the system for managing ministerial spending that has the potential for personal benefit. Our assessment included considering four layers of that system:

  • how the three systems fit together, and in particular how the Ministerial Services system interfaces with those administered by the Parliamentary Service and the Remuneration Authority;
  • whether the rules in the Executive Determination are workable and fit for purpose;
  • whether the financial management processes supporting the rules are effective and provide suitable control and accountability; and
  • how well the Ministerial Services system works in practice.

What we did

For the first part of our inquiry, when we examined spending in the office of a particular Minister, we identified the main categories of spending where there was scope for personal benefit and looked in detail at every transaction in those categories.6 We also reviewed the rules, administrative processes, and guidance supporting ministerial spending.

For this second part of our inquiry, we again concentrated on the categories of spending that have some scope for personal benefit. We looked at spending in those categories across all ministerial offices for three years, going back to 2007/08, to identify patterns and trends. We then requested complete lists of transactions from different offices for some specific categories and types of spending.

From those lists, we sampled 260 transactions in different categories to examine the supporting information in more detail. We also reviewed the credit card transactions and supporting documentation for all Ministers between 2003 and 2010, which the Department had publicly released.

We supplemented this documentary information with interviews with staff from Ministerial Services (who administer the financial management processes) and senior private secretaries from several ministerial offices. We also spoke with the Speaker and the Minister responsible for Ministerial Services, to understand their perspective on the systems they are responsible for.

We also spent some time reviewing the rules in the Executive and Parliamentary Determinations and their supporting guidance in the Ministerial Office Handbook (the Handbook) and other documents. We researched the history of the overall support arrangements, and compared the way they work with those in several other jurisdictions.

We then analysed all this information and made a preliminary assessment of how well the Ministerial Services system was operating. We provided a draft report to Ministerial Services for it to comment on the factual accuracy of our findings and on the reasonableness of our analysis and comments. We also checked parts of the report with the Parliamentary Service and the Remuneration Authority.

The structure of this report

Because the Ministerial Services system is not well documented or publicly understood, this report begins with some background and descriptive information. Part 2 describes how support is provided to Ministers, and the relevant legal and administrative rules.

Part 3 summarises our general expectations about how public entities will manage spending that has the potential to give personal benefit, and our general expectations of financial management processes. It also describes how we tailored those expectations to the ministerial context.

The next two Parts set out our conclusions about the first two layers of the Ministerial Services system, which largely focus on the institutional arrangements and legal rules that govern Ministerial Services' work. Many of the issues identified in Parts 4 and 5 will need to be addressed through collaborative work between Ministerial Services and the other administering agencies and responsible departments:

  • Part 4 looks at how well the three systems fit together (the Remuneration Authority, the Parliamentary Service, and Ministerial Services), and discusses some practical problems that arise from these overall support arrangements; and
  • Part 5 sets out the results of our analysis of the detail of the rules in the Executive Determination that govern the Ministerial Services spending.

The operational layers of the system are addressed in the next two Parts. They focus on the internal administrative policies and practice within Ministerial Services:

  • Part 6 looks at the financial management processes and assesses their ability to provide effective support and control; and
  • Part 7 summarises our findings on what happens in practice.

The final part of this report, Part 8, draws together the detail of the previous discussions and summarises our overall findings. It then describes the changes that we consider are needed.

3: Appendix 1 sets out the full terms of reference for our inquiry.

4: The full name of the document is Travel, accommodation, attendance and communications services available to members of the Executive. The Executive Determination is available on the parliamentary website: Exec1-MPs-entitlements-members-of-the-Executive.htm.

5: Report of the Fourth Triennial Parliamentary Appropriations Review, (June 2010), New Zealand Parliament, Wellington.

6: These categories included expenditure for domestic and overseas travel, accommodation and other associated costs, entertainment, gifts, government hospitality, and other miscellaneous ministerial office expenditure.

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