Controller update: July to December 2021
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 2021/22.
Key points
- Almost all government spending for the first six months of 2021/22 has been properly authorised and was within the law.1 The few confirmed instances where this was not the case involved administrative oversights.
- When the Covid-19 Resurgence Support Payment was activated in June 2021, the recommendation to Cabinet omitted to request that the spending be authorised under the Imprest Supply Act. Without Cabinet’s explicit agreement to use imprest supply, there was no other Parliamentary authority for the payments. The oversight was identified in early July, and spending authority was provided on 15 July. By then, $4.77 million had been paid without authority.
- Meridian Energy Limited’s dividend reinvestment plan resulted in the Crown receiving new shares valued at $33 million in October 2021. The Parliamentary appropriation2 that authorises such an investment had not been increased to cover this event, resulting in $11.7 million of the investment being unappropriated.3
- The Department of Conservation transferred the Arikikapakapa Recreation Reserve to a third party in September 2021. The process had been delayed from 2020/21 to 2021/22, and the Department had requested an expense transfer from 2020/21 to 2021/22 to cover it. However, the land transfer was finalised before the expense transfer and the authority to use imprest supply had been approved, resulting in $3.13 million of unappropriated expenditure.
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.
Spending authority for 2021/22
The Budget Act came into force on 14 September 2021.4 The Act gives legal authority to the Government’s 2021/22 Budget, allowing the Government to spend up to $149.5 billion of public money in 2021/22 (the dark bar in Figure 1, below).
However, the Government needed spending authority from the start of the financial year (1 July 2021) until 14 September 2021 so that it could continue to operate during this period. This process is normal and happens every year. It received this “interim” authority through the first Imprest Supply Act for the year, which was passed in June 2021.5
This Act allowed the Government to spend up to a total of $41 billion in advance of the Budget Act coming into force. This authority lapses once the Budget Act is passed.
As part of our monthly Controller work, we checked the amount of Government spending incurred from 1 July to 14 September 2021 to ensure that it did not exceed the amount provided for under the first Imprest Supply Act. No issues were identified, other than those described above (and explained more fully below).
When the Budget became law, a second Imprest Supply Act was also passed into law.6 This is also normal and happens every year. This second Imprest Supply Act provides flexibility to the Government by authorising expenditure not included in the Budget Act and gives the Government room to respond to changes since the Budget was put together earlier in 2021.
The second Imprest Supply Act allows the Government to spend up to a total of $41 billion in addition to that authorised under the Budget Act (the light bar in Figure 1, below).
Figure 1:
The Government’s Budget and spending authority for the 2021/22 year ($billions)
As part of our Controller work, we check each month that the amount of new “between-Budget” expenditure agreed by Cabinet7 (that is, the use of imprest supply under the second Imprest Supply Act) is within the $41 billion authorised by Parliament. As at 31 December 2021, Cabinet’s new spending decisions were well within the $41 billion limit.
What have we found so far in 2021/22?
We have been emphasising to Government departments the need to ensure that the correct authorities are in place before incurring expenditure not provided for in the Budget Act. Unfortunately, such oversights continue to happen.
From the work we have carried out on expenditure up to December 2021, we have confirmed three instances of unappropriated expenditure resulting from such administrative oversights.
Covid-19 Resurgence Support Payment
By 28 June 2021, Cabinet had agreed to activate the “Covid-19 Resurgence Support Payment” scheme following a shift to higher alert levels. The purpose of the payment scheme (administered by Inland Revenue) was to help alleviate the economic effects of the alert level requirements on businesses. Budget 2021 did not provide for this expenditure. Therefore, the recommendation to make such payments needed to explicitly request Cabinet to authorise these payments under the Imprest Supply Act.
The wording of the initial recommendation to Cabinet to reactivate the scheme in July 2021 omitted to request the use of imprest supply and, because there was no existing financial authority for the payments, the earlier payments were made without any authority.8 We have established that $4.77 million of payments were unauthorised before imprest supply authority was granted on 15 July 2021. Payments after that date have been made with the correct authority.
Crown dividend re-investment in Meridian Energy Limited
From time to time, the majority Crown-owned energy companies will issue new shares as part of their dividend reinvestment plans. The Crown’s participation in these plans is necessary to ensure that it maintains its majority shareholding. Parliament authorises the Crown’s reinvestment in the energy companies through a specific appropriation in Vote Finance.
Meridian Energy Limited announced on 30 March 2021 that it would apply a dividend reinvestment plan to its next dividend payment, in October 2021. On 15 October 2021, the company paid a dividend, resulting in the Crown receiving new shares valued at $33 million. However, the appropriation authority available at the time was only $21.3 million, which meant that $11.7 million of the investment was unappropriated expenditure.
Transfer of the Arikikapakapa Recreation Reserve
If activities authorised for a particular financial year are delayed or otherwise deferred, it is common for Government departments to request an in-principle expense transfer (and associated funding) to the following financial year. If the transfer is granted in principle, the department must seek confirmation of the transfer during that (following) financial year. If confirmed, the department will need to seek approval under imprest supply to incur the expenditure in the following year, unless the spending is covered by the Budget Act for that year.
On 29 September 2021, the Arikikapakapa Recreation Reserve in Rotorua was vested in a third party when the legal land transfer was completed. Legal requirements and consultation with iwi and the local district council delayed the process from 2020/21 to 2021/22. The Department of Conservation had requested an in-principle expense transfer from 2020/21 to 2021/22, but the land transfer was finalised before the expense transfer and use of imprest supply were approved in October. As a result, expenditure exceeded appropriation by $3.13 million at the time of the land transfer.
1: Confirmed unappropriated spending was about 0.02% of total Crown expenditure from 1 July to 31 December 2021.
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: 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.
4: The Appropriation (2021/22 Estimates) Act 2021.
5: The Imprest Supply (First for 2021/22) Act 2021.
6: The Imprest Supply (Second for 2021/22) Act 2021.
7: Or through Cabinet delegation to joint Ministers.
8: From 1 July to 31 December 2021, the Government made more than 1200 adjustments to budgeted spending requiring the use of imprest supply. This is the only instance we have identified for which the department omitted to explicitly request the use of imprest supply.