Controller update: July to December 2020
Introduction
We have a strong interest in New Zealanders’ trust and confidence in the public sector. A key element in that is our role in helping to ensure that all government spending is properly authorised and within the law. This update covers the first six months of 2020/21.
Key points
- Most government spending for the first six months of 2020/21 has been properly authorised and was within the law. However, one of the Covid-19 responses has led to unappropriated expenditure in 2019/20 and 2020/21.
- In response to the effects of Covid-19 on international tourism, the Government redirected Tourism New Zealand’s efforts from marketing New Zealand overseas toward promoting tourism to the domestic market. Unfortunately, the proper authority to spend public money1 on domestic marketing had not been sought. As a result, more than $2 million was incurred on domestic marketing in 2019/20 without an appropriation, and more expenditure was unappropriated in 2020/21. The necessary authority was put in place on 16 December 2020 after the issue had been identified.
- In Budget 2020, about 130 small appropriations2 were merged to form about 53 larger ones.3 Merging spending authority into larger appropriations gives the Government more flexibility in how it allocates spending. It also means that the information that Parliament uses to examine the Budget could potentially be less detailed. We will continue to note any further changes in Budget 2021.
Our role
The Controller and Auditor-General is often referred to as the public “watchdog” on government spending. An important part of the watchdog role is the Controller function
In this Controller role, we provide assurance to Parliament and New Zealanders that the Government has spent public money in line with the authority provided by Parliament.
The Controller and Auditor-General carries out his Controller role throughout the year and reports more fully to Parliament after the end of the financial year to 30 June.
Unappropriated expenditure in 2019/20
The Government’s financial statements for the 2019/20 year report the unappropriated expenditure4 for the year ended 30 June 2020, based on information available at 5 November 2020.5
We discuss unappropriated expenditure for 2019/20 in our report, Central government: Results of the 2019/20 audits.6 In that report, we provide an explanation and observations about how much public money was spent without appropriation during 2019/20, how that compares with previous years, why the unappropriated expenditure occurred, and Covid-19’s effect on that.
Because of the disruption caused by Covid-19, the reporting deadline for government departments was deferred until 30 November 2020. Since completing our audit of the Government’s financial statements, one more instance of unappropriated expenditure has emerged. The unappropriated expenditure was part of the Covid-19 response. This is disclosed in the annual report of the Ministry of Business, Innovation and Employment.7
The Minister of Tourism endorsed Tourism New Zealand redirecting its efforts from marketing New Zealand overseas to promoting tourism to the domestic market. This was in response to the effect of the pandemic on global tourism and, specifically, the sudden halt in overseas tourists visiting New Zealand.
Tourism New Zealand used its resources to promote New Zealand to New Zealanders through a “Do Something New, New Zealand” campaign. The campaign’s intention was to stimulate tourism and therefore support the domestic tourism industry. Although quickly adapting its operations to the new environment, the necessary authority for such spending was, unfortunately, not sought.
Parliament authorises the funding of Tourism New Zealand’s activities through an appropriation that is “limited to the promotion of New Zealand as a visitor destination in key overseas markets”.8 Promoting tourism to the domestic market was outside the scope of what Parliament had approved. Approval to change the scope of the appropriation should have been sought before Tourism New Zealand embarked on its domestic marketing. As a result, a little more than $2 million of spending was unappropriated in 2019/20.
What have we found so far in 2020/21?
The only incidence of unappropriated expenditure that we have confirmed so far in 2020/21 is for the Government’s domestic tourism marketing campaign through Tourism New Zealand, as described above. Cabinet has now broadened the appropriation covering Tourism New Zealand’s marketing activity to include domestic marketing and has approved spending from 16 December 2020 under the relevant Imprest Supply Act.9
This means that Tourism New Zealand’s spending on domestic marketing, from 1 July to 16 December, was incurred without the proper authority. Our auditors will confirm the amount of unappropriated expenditure for 2020/21 as part of their annual audit work.
Why the Government can spend money before the Budget is passed into law
Parliament authorised the appropriations in the 2020 Budget on 6 August 2020, when the Appropriation (2020/21 Estimates) Act 2020 came into force. Because of the timing of this Act, the Government needed interim authority from Parliament to spend public money from 1 July until 6 August. That interim authority was provided by the Imprest Supply (First for 2020/21) Act 2020, which was passed in June.
The Imprest Supply Act allowed the Government to spend up to $52.2 billion during this period so that it could continue to operate before the Appropriation Act became law.
This process is normal and happens every year (although the amount for 2020/21 is significantly higher than normal because of Covid-19). We checked the amount of spending authorised during this period and found that it was within the Imprest Supply Act’s financial limits (at $12.4 billion).
Why the Government can spend money that wasn’t in the Budget
When the Budget became law on 6 August, the first Imprest Supply Act was repealed and a second Imprest Supply Act10 was passed. This Act provides flexibility to the Government by authorising expenditure not included in the Budget and gives the Government room to respond to changes since the Budget was put together earlier in 2020. In contrast to the Appropriation (Estimates) Act, spending under the second Imprest Supply Act is scrutinised by Parliament after the fact.
For 2020/21, the “between Budget” authority provided by the second Imprest Supply Act has increased considerably, from $17.3 billion in 2019/2011 to $56.5 billion. As such, Parliament has agreed to give the Government the ability to incur significantly more expenditure without prior Parliamentary scrutiny, in support of the Government’s response to Covid-19 (see Controller update on Government spending on Covid-19, 17 September 2020). There are strict rules about using this Act to spend money that wasn’t initially budgeted for, including the need for prior Cabinet or Ministerial approval.
We checked that the amount of new expenditure the Government had authorised to be spent as at 31 December 2020 under imprest supply ($12.6 billion) was within the $56.5 billion authorised by Parliament under the second Imprest Supply Act.
Fewer appropriations in 2020/21
The number of appropriations was reduced for Budget 2020, as many small appropriations had been merged within Votes.12
As part of its Public Finance Modernisation Programme, the Treasury has been working with departments to identify where appropriations could be merged.13
We estimate that about 130 appropriations have been consolidated into about 53 larger appropriations, across 27 Votes. The Treasury tells us that a small number of further consolidations will be carried out for Budget 2021
The changes mean that Parliament will be asked to authorise spending based on larger appropriations. This should provide more flexibility for departments and create efficiencies.
We agree, in principle, with creating efficiencies in the public finance system. However, we also note that the information that Parliament uses to examine the Budget could potentially be less detailed. We will continue to note any further changes in Budget 2021.
1: Public money is all money received by or on behalf of the Crown and any money held by an Office of Parliament (excluding money held in trust as trust money). The Crown includes all Ministers of the Crown and all departments, but does not include an Office of Parliament, a Crown entity, or a State enterprise.
2: Appropriations are authorities from Parliament that specify what the Crown may incur expenditure on (specific areas of expenditure). Most appropriations specify limits in terms of the type of expenditure (such as operating or capital expenditure), what it can be used for, the maximum amount, and the time period.
3: These changes have been made as part of the Public Finance Modernisation Programme.
4: Unappropriated expenditure is expenditure incurred by the Crown or an Office of Parliament without an appropriation, an interim authority to use imprest supply, or another authority provided by Parliament.
5: The Treasury (2020), Financial Statements of the Government of New Zealand for the Year Ended 30 June 2020, Wellington, pages 153-162, at treasury.govt.nz.
6: Office of the Auditor-General (2020), Central government: Results of the 2019/20 audits, at oag.parliament.nz.
7: The Ministry of Business, Innovation and Employment (2020), 2019/20 Annual Report, page 138, at mbie.govt.nz.
8: Estimates of Appropriations: Vote Business, Science and Innovation - Economic Development and Infrastructure Sector - Estimates 2019/20, pages 9 and 87, at treasury.govt.nz.
9: Imprest supply refers to Parliamentary authority (by way of an Imprest Supply Act) that grants the Government interim authority to incur expenses and capital expenditure in advance of appropriation.
10: The Imprest Supply (Second for 2020/21) Act 2020.
11: The authority for 2019/20 was boosted by a further $52 billion in March 2020, through a third Imprest Supply Act for the year, mainly as a response to the Covid-19 outbreak.
12: A Vote is a grouping of one or more appropriations that are administered by a department. Votes generally take the name(s) of the portfolio(s) of the Appropriation Minister(s).
13: The Treasury (2019), Consolidating Appropriations - Technical and Process Guide for Departments, at treasury.govt.nz.