Part 6: Do the financial management processes provide effective control?

6.1
Parts 4 and 5 looked at the institutional arrangements and legal rules that govern Ministerial Service's work. We now turn to the operational layers of the system.

6.2
In this Part, we discuss the financial management processes that Ministerial Services uses to administer the rules. In particular, we assess whether the administrative policies and procedures are effective and provide suitable control and accountability. Although our focus was on the types of spending that have the potential to give personal benefit, the relevant administrative policies and procedures apply to all types of spending. We discuss:

• the role of the Handbook;
• our assessment against our general expectations for policies governing spending with the potential for personal benefit;
• how the policies and guidance are presented;
• some comments on the detailed content;
• the approval processes; and
• our overall assessment.

6.3
Part 7 discusses how these policies and procedures work in practice.

The role of the Ministerial Office Handbook

6.4
The Handbook is a mixture of a desk file, with many sources of useful reference material, and administrative policies, procedures, and guidance. The sections of it relevant to this inquiry set out rules, policies, and procedural guidance about spending, including the processes for making claims and having spending authorised. Some other general departmental financial policies and procedures, which are included in the Handbook, are also relevant, as are the departmental delegations that set out who has authority to decide on financial matters.

6.5
Since 2009, the Handbook has been available on the Ministerial Office intranet. The intention is for it to be updated from time to time, as needed.

6.6
The Handbook describes itself as "the authoritative guide" for staff, but does not purport to be the set of clear and definitive policies that most public sector organisations would have to manage the risks around spending that has the potential for personal benefit.

6.7
When we began our work, we assumed that the Handbook was the equivalent of departmental policies setting out binding rules and procedures for staff. We audited spending practice against its spending rules and procedures, in the same way as we would against departmental policies in other organisations.

6.8
Ministerial Services later explained to us that it does not regard the Handbook as having this status. We were told that the sections on financial management that we were considering state rules that the Assistant General Manager sets to help his financial management of the ministerial offices and his interaction with them. As a result, the Assistant General Manager also has the ability to waive or dispense with the requirements when he considers they are not necessary or important.

6.9
It was explained to us that Ministerial Services works closely with senior private secretaries in a fast-paced and practical environment. A considerable amount of shared understandings rapidly develop, and there is a great deal of regular and informal communication. In this context, Ministerial Services sees it as important to be practical in its application of the various procedural requirements, and to not insist on compliance when to do so would be unduly pedantic or bureaucratic.

6.10
We understand this practical context. However, we are concerned that the current approach reduces the usefulness of the Handbook and creates risk for the Department and Ministers.

6.11
The Handbook does not adequately explain its own status, because there is nothing on the face of the document to suggest that it states anything other than formal and binding administrative requirements, along with some general guidance. It is unclear which rules are important and will be strictly enforced, and which may be waived. It is not clear whose rules they are, what their status is, and who can decide to waive them or whether to enforce them.

6.12
We do not consider it satisfactory to have such a lack of clarity about the basic requirements in the financial policies and procedures. It must make it difficult for users to understand what they are expected to do. It also means that external accountability processes, such as public scrutiny, audit, and this inquiry have an unclear basis for holding the Department to account.

6.13
It also creates a risk that people will be seen as acting outside rules in the Handbook, when Ministerial Services may not regard those rules as significant or enforce them strictly. This type of risk eventuated when the information on credit card spending was released earlier this year, showing that many people had put personal spending on their office cards, despite the rule in the Handbook. Ministerial Services does not appear to have enforced this rule consistently or systematically whenever a breach occurred. It is hard to know whether the apparently firm rule in the Handbook on not using credit cards for personal spending was regarded as a rule that mattered.

6.14
This confusion about the status of the Handbook and the rules it states permeates many of our findings on operational issues, as often the significance of our findings depended on whether the requirements set out in the Handbook were regarded as important parts of the financial checking process.

Assessment against our general expectations for policies governing spending with the potential for personal benefit

6.15
In paragraph 3.9, we summarised our general expectations of organisational policies and procedures for spending that has the potential to give personal benefit. To reiterate, policies and procedures need to:

• make clear what types of spending are and are not permitted;
• outline clear approval processes that are specific about who approves what;
• set spending limits or boundaries, including explaining what is meant by "actual and reasonable" when these terms are used, and specifying dollar limits and defined boundaries, where practicable, of what is "reasonable";
• allow a manager to grant an exception in exceptional circumstances;
• specify the monitoring and reporting regime and, where applicable, any internal audit checks that may be applied; and
• specify the process for amending the policies and procedures.

6.16
As noted, we originally assumed that we could assess the Handbook against these expectations, and treat it as equivalent to the organisational policies and procedures governing sensitive expenditure. When it became clear that we could not, we instead assessed the overall body of rules, information, and guidance against these expectations, to see how the overall picture compared to our general expectations.

Are the policies clear on what is and is not permitted?

6.17
Our first expectation was that the policies would make clear what spending is and is not permitted when there is the potential for that spending to provide personal benefit. The Executive Determination includes clear statements on the types of transport that will be paid for, as well as a list of some matters that will and will not be paid for out of operational resources.

6.18
The Handbook sets out some clear policies on what will and will not be paid for when staff are travelling. For example, there are clear rules on minibar expenses and that alcohol for staff is a personal expense. However, most of the Handbook is not written in this way. It provides broad guidance, and some clear limits on the amount that staff can certify on their own, but in most cases it does not set clear limits on what is permissible.

6.19
We appreciate that there is a risk if policies of this kind are too prescriptive, especially in an environment where flexibility and responsiveness is important. However, we consider that the information in the Handbook could be developed further to give more information to staff about where the boundaries lie. For example, we have seen email messages and meeting minutes where there has been discussion of the approach taken to matters such as Christmas cards and staff functions. This type of practical information could usefully be collated from time to time and incorporated into the Handbook. There will always be a need for flexibility, of course, to meet new or unexpected situations. But the basic or default expectations and responsibilities could be clearer.

Are the approval processes clear?

6.20
As noted, the Handbook contains some clear information on levels of authority to incur, certify, and approve spending, and the approval processes to be followed. We have summarised these in Part 2. There is also a clear table that sets out the amounts that senior private secretaries can incur without prior approval from the Assistant General Manager. In our interviews with senior private secretaries, several told us that this table was the main document they used.

6.21
However, as just discussed, in practice these requirements are not all seen as important and are not always complied with. In our view, the Department needs to provide clear information on which procedural steps are required and which are optional.

Does the policy set clear limits and explain what is meant by "reasonable" costs?

6.22
For accommodation and other incidental travel expenses, the rule in the Executive Determination states that actual and reasonable expenses will be met up to a specified limit. The Executive Determination also sets the different types of road transport (such as taxis and chauffer-driven cars) that will be paid for or provided.

6.23
One of the main practical deficiencies we identified with the Handbook is that it does not often attempt to explain what is "reasonable". It assumes that Ministers and senior private secretaries can and will make individual judgements, or will seek further clarification or guidance from Ministerial Services when they need it.

6.24
Our interviews with senior private secretaries confirmed this as problematic. In discussions with them, we were provided with very different views on what was and was not reasonable for common types of spending, such as accommodation and meal costs, alcohol, entertaining, and gifts. Several senior private secretaries told us that they would welcome more explicit guidance, especially when they were new and working to set up a ministerial office. They had no basis for assessing what was a sensible amount to be spending, for example, on simple items like flowers for the office, art, or kitchen supplies. Ministerial Services provided us with many examples of email correspondence where they had provided advice in response to individual requests for advice. It is clear that advice is available if people ask. We consider it would be better for more of that practical guidance to be included in the Handbook or other sources, so that it is readily available to all senior private secretaries without them needing to ask.

6.25
There are many ways to provide more information and guidance without removing discretion or impairing autonomy. For example, some senior private secretaries suggested that it would be helpful to receive reports that showed them how their office spending compared to others, at the same time as they receive their own monthly financial reports. The Handbook could usefully include clearer policies and explicit guidance on standard types of spending, including normal spending ranges, benchmarks, and limits to what can be spent without special approval. This information could cover many more types of spending than the existing information on spending limits. We also note that, for common business expenses such as hotel accommodation, many public sector organisations negotiate a standard and discounted rate with providers in major centres. Although Ministers would always be able to stay elsewhere, this type of arrangement provides a simple default option, as well as clarity about reasonable costs.

Is there clear management discretion to grant exceptions?

6.26
The ability to grant exceptions or waive requirements is one of the issues that has led us to suggest that Ministerial Services needs to reconsider the way in which it uses the Determination and the Handbook to set rules.

6.27
There is no discretion to grant exemptions for matters or procedures stated in the Executive Determination, because the rule is stated in delegated legislation. It means that the Determination must be formally amended when exceptions are needed. For example, formal changes were needed to take account of the likely increase in Auckland accommodation costs during the Rugby World Cup in 2011.

6.28
We have already discussed that the Handbook does not make clear what authority its requirements have and how exemptions will be dealt with. In practice, Ministerial Services regards the Handbook as its own internal rules, which it is able to waive or vary as needed. In practice, the decisions on whether to apply a rule rest with the Assistant General Manager, who holds the relevant financial delegation. We have already commented that we regard this approach as carrying some risk.

Are there clear financial monitoring, reporting, and checking processes?

6.29
The Handbook sets out the basic financial management processes for submitting claims for spending and having them checked and approved. It also explains the reporting that Ministerial Services provides back to each ministerial office. In this regard, it meets our expectations.

6.30
The Handbook does not go further and explain how the Ministerial Services processes fit with more general departmental processes for financial monitoring, reporting, and checking how the Vote is spent. Although the detail of how the broader processes work may not be needed, we consider there would be benefit in setting out this overall departmental context and accountability process, at least in outline. Doing so would help make clear to all those involved in the system that the Department must administer and account for spending in Ministerial offices in the same way as it does for all other spending in this and other Votes. This additional background could help to underline the relative responsibilities of the Department and Ministers for ensuring that spending is correct.

Is there a clear process for making amendments?

6.31
Ministerial Services updates the Handbook from time to time. The last major update to the Handbook was in 2008 and the entire Handbook was reissued. In addition, Ministerial Services makes minor changes from time to time and advises staff of the changes. Since 2009, the Handbook has been on the Ministerial Office intranet. The intention was for it to be easily and regularly updated electronically, but Ministerial Services staff told us that technical issues have so far prevented them from doing so.

6.32
The Handbook does not explain when or how it is amended, or who approves its content. In our view, it would be useful if it did explain this process, so that it is clear to staff that they need to ensure that they are working with up-to-date information. A clear statement of who sets the various requirements in the Handbook would also help give the contents of the Handbook clearer status for staff and others.

6.33
As well as the Handbook, the Department provides ongoing and more informal advice and information through a range of mechanisms. These include day-to-day exchanges on specific issues that effectively build up a set of precedents, advice to all senior private secretaries through emails, and communication through monthly meetings with all senior private secretaries. These are all useful practices. The question is whether they can be developed further, to make up-to-date information readily available on an ongoing basis.

6.34
In our view, there is scope for Ministerial Services to improve its approach to communicating guidance and procedural requirements so that the information is clearer and more user-friendly. We have already said that Ministerial Services should develop the Handbook and associated guidance so that it is clear about the status of the different requirements and distinguishes between requirements and policy that are set by the Minister, by the Department, and by Ministerial Services. This will be more helpful for all those working in the system, and also better for external accountability purposes.

6.35
At the same time, it would be useful to institute more systematic and transparent processes for recording and communicating significant new information or changes to the policies and advice. This process could feed into the more regular and systematic updates of the Handbook that are envisaged, now that the Handbook is available on-line. There is the potential to develop the on-line version, and related material, into a much more useful resource.

6.36
We note that the Parliamentary Service now has a clear process to manage this aspect for the support it provides to parliamentary offices, which includes an annual revision of the detailed rules in the Parliamentary Determination. The Cabinet Office system of a Manual and occasional formal circulars recording new or subsidiary requirements provides another model. There are many other examples of similar systems, including the Treasury's circulars to the public sector on financial requirements and the Ministry of Education's circulars for schools.

6.37
We encourage Ministerial Services to look at these and other models that enable procedural guidance to be kept up to date and communicated effectively, to see whether there are techniques that it could adapt and use.

How the policies and guidance are presented

6.38
The Handbook fills a large ring binder. It covers a wide range of topics, from staffing and financial procedures to correspondence procedures, diary management, diplomatic protocols, and security. The information it contains is generally useful, but the size and format makes it unwieldy. In our interviews, we were told that people find it difficult to use and tend to rely day-to-day on extracts or other documents.

6.39
From our own review of the document, we noted that it contains a significant amount of background material, some of which is not directly relevant to the users. For example, the departmental delegations document in Appendix 3A is large and complex, and serves only to make clear that the General Manager and Assistant General Manager hold the financial delegations and ministerial office staff do not. The Handbook could simply state this without including the whole document.

6.40
Similarly, it would be more helpful for the users if the content of the general Departmental policies on business expenditure, credit cards, probity, and koha were integrated into the guidance given in the Handbook rather than simply reproduced as attachments. The current approach provides ministerial office staff with a great deal of general background material, but leaves them to work out the interaction between these policies and other ministerial rules and guidance, and their application to their own circumstance. It does not make it easy for them to know what to do.

6.41
In our view, it is important for Ministerial Services to recognise that ministerial offices work in a different context, and that general departmental policies on appropriate spending by staff may often not fit well with the needs of Ministers or the specific rules in the two Determinations. It would be better if Ministerial Services provided Ministers and senior private secretaries with a single and integrated set of tailored guidance on what spending is and is not appropriate in their particular context.

6.42
Similarly, we note that the Handbook reproduces in its entirety our good practice guide on sensitive expenditure. The primary purpose of our guide is to help managers in public sector organisations to write policies and procedures that build in the right sort of protections and principles in a way that suits their context. Ministerial Services told us that the content of our guide has been helpful on many occasions, and we are pleased that it has considered our guide in practice. We suggest that it would be even more helpful if Ministerial Services incorporated the principles and advice in the guide into clear policies tailored to the Ministerial Services context, rather than reproducing the full guide for staff to apply.

6.43
Under the heading "Probity", paragraph 3.40 of the Handbook simply states that:

The Department's probity policy is at Appendix 3D and should be read in conjunction with the Controller and Auditor's General [sic] Good Practice Guide at Appendix 3F.

6.44
We do not consider this an adequate or helpful statement. In our interviews, senior private secretaries told us that it would be more helpful if they were given much more firm and practical guidance on what the Department considered appropriate, for example, for staff farewells and gifts. In discussion with us, senior private secretaries were clear that they wanted to "do the right thing" and would welcome some simple and practical advice on what that was. They do not necessarily have time to reason through from first principle documents of this kind.

6.45
In our view, there is scope to streamline the Handbook considerably, and to make its content much more directly useful and accessible. We note that the Parliamentary Service has put considerable effort into its administrative processes and guidance for staff in recent years. Its guidance, available to staff electronically, would provide a good model for Ministerial Services to consider when it revises the Handbook.

Some comments on the detailed content

6.46
We also identified several more specific problems with the content of the Handbook, which we summarise here.

Conflicting advice on personal expenditure and reimbursement

6.47
In our view, the advice in the Handbook on the use of office payment processes for personal spending is inconsistent and probably impractical. For example, the advice is different depending on whether the payment is made through the office imprest account or by a credit card. For payments made through the imprest account, the senior private secretary is simply required, when submitting the claim, to ensure that a personal cheque is attached for any personal expenses. A later paragraph gives the following advice:

Personal expenses

The imprest account should not be used for personal expenditure except where the personal expenses are a component of a larger official expense – for example, personal phone calls on a hotel account. When the reimbursement claim for the official expenses is submitted to Ministerial Services, the staff member or Minister must attach a personal cheque for the personal expense made out to "Department of Internal Affairs".

6.48
The advice on the same issue, but when payment is made with a credit card, is quite different. It states:

When an office makes application, Ministerial Services arranges for corporate credit cards to be issued to Ministers and selected staff for official expenditure. Unless an emergency, use of staff credit cards for other expenditure should not occur without prior approval of the [Assistant General Manager].

Use of a credit card for personal expenditure (regardless of the intent to reimburse) is not permitted.

6.49
At a later point, when discussing overseas travel, the Handbook's advice is that official funds should not be used for personal spending, except in extreme circumstances. Advice is then given on how to reimburse any personal expenses.

6.50
Our review of ministerial office spending practices and credit card spending shows that the approach set out for the imprest account has been applied more generally, and is often followed for credit card spending as well.

6.51
We note that the State Services Commissioner made the following comments when he released details of credit card spending by departmental chief executives:

There are some instances where chief executives have reimbursed purchases made on the card, and there are circumstances where this is a pragmatic and acceptable course of action. For example, it is not always practicable to separate personal from work related expenses when checking out from a hotel – in this case it is my expectation that the chief executive would reimburse the department immediately upon their return to work.

6.52
We agree with this approach. In our view, the rule in the Handbook for credit cards is probably too strict to be practical. We commented in our earlier report on this inquiry that:

… circumstances can arise from time to time where it may be sensible to put items of personal expenditure on credit cards when there is a clear intention to reimburse the costs. However, this should be done only when necessary and should be clearly documented.

6.53
Ministerial Services should consider whether the current policy in the Handbook is too strict, and whether the approach taken to personal spending through the imprest account may be more practical.

Conflicting advice on luggage

6.54
The guidance on paying for luggage is confusing. As previously noted, the personal allowance that all MPs receive explicitly includes briefcases and luggage as one of the costs it is designed to cover. The entitlement to "operational resources" in the Executive Determination also says that briefcases and luggage can be paid for with these funds. However, a paragraph in the Handbook states that:

Suitcases for the Minister, spouse and accompanying staff can be borrowed from Ministerial Services. Where a Minister is a frequent overseas traveller, Ministerial Services may approve a written request to purchase a suitable set of luggage for an office.

6.55
It is not clear who pays for ministerial luggage or what the approval process is for any such purchase. We note that many offices rely on the one-page list of what can and cannot be funded out of operational resources, and so would assume that they can pay for and authorise luggage purchases. As we described in our report on the first part of this inquiry, that is exactly what happened when a Minister purchased some replacement luggage.

Approval processes

6.56
In Part 3, we set out our general expectations about approval processes. We noted that they need to provide enough documentation or explanation for an independent person to be able to understand why the expense was incurred and to assess whether it was reasonable and appropriate.

6.57
We accept that the normal financial practices of the most senior person in a group paying, and of the spending then being reviewed and approved by a person senior to that person, cannot operate in the ministerial context. In many formal situations, the staff member is there to take care of administrative matters, including payment, so that the Minister is able to concentrate on the business of meeting dignitaries or hosting events. There is no more senior person in the office who could approve the spending by Ministers.

6.58
Ministerial Services' general procedures manage this problem by requiring the senior private secretary to certify all office spending, and giving the approval role to the Assistant General Manager. This person obviously has greater distance from the Ministers and senior private secretaries, and so should be able to form an independent view on appropriateness and reasonableness.

6.59
We have concluded that the financial approvals process, as it is designed and written, broadly meets our expectations.

Our overall assessment of the policies and procedures

6.60
This Part has focused on the third layer of the system, and our analysis of the administrative policies and procedures that Ministerial Services has in place to support the financial management processes. We looked at whether they were effective and provided suitable financial control and accountability.

6.61
We have concluded that the basic design of the financial management and approval processes is sound.

6.62
However, we have also concluded that there is considerable scope to improve the guidance and information provided to staff through the Handbook and other mechanisms, and to streamline and simplify the content. In particular, we are concerned that the status of policies, requirements, and guidance is not always clear. It is unsatisfactory that it is not clear which requirements in the Handbook are important, and which can be dispensed with if circumstances require it.

6.63
The current guidance also leaves too much room at times for individual judgement about what is reasonable or appropriate. The Handbook also contains conflicting advice on several points, including the question of paying for personal items through office processes and then reimbursing the cost.

6.64
In our view, there is scope for Ministerial Services to improve the Handbook and associated guidance much more, to provide clearer and more user-friendly information for those working in the system and to support external accountability processes.