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Report: Spending that could benefit Ministers

[Report: ministerialspending.pdf]


Auditor-General's overview

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

This is the ninth public report in 10 years by an Auditor-General about spending on parliamentary and ministerial support. This sort of public sector spending has many challenges and attracts a great deal of attention, both in New Zealand and internationally.

I agreed to carry out the inquiry I report on here, because of the ongoing concerns raised about whether spending by Ministers was appropriate. The political leaders of any country must be accountable for their actions, and their spending should be able to be scrutinised in the same way as any other use of public funds. Equally, Ministers should be supported by financial management processes that help them spend public funds reasonably and appropriately.

Much of the recent public discussion and debate on parliamentary and ministerial spending has been about the appropriateness of individual decisions – whether particular transactions were within the rules, unduly extravagant, or simply inappropriate. I make clear at the outset that this report is not about individual items of spending. It does not name any Ministers or single out individual and identifiable decisions for criticism.

The Ministerial Services unit within the Department of Internal Affairs (the Department) is responsible for the support that is provided to Ministers.

In this inquiry, our aim was to assess whether the Ministerial Services system for managing spending that could give personal benefit to Ministers operates coherently and effectively. We looked at whether that system is able to provide effective support for Ministers and their senior private secretaries and enable effective management of this part of Vote Ministerial Services. We were not looking for more examples of mistakes or questionable judgement. We were looking instead at whether the rules and financial management processes were likely to minimise the chances of mistakes happening, and catch and correct any that might occur.

What we found

Overall, we have concluded that the current system for providing support to Ministers has flaws at each of the levels we examined. The system functions but, cumulatively, the problems are significant.

The institutional and legal context in which Ministerial Services must operate is unhelpful:

• The overall support arrangements made up of the Ministerial Services, Parliamentary Service, and Remuneration Authority systems create some overlap and complexity.

• The legal status and purpose of the rules (which are set out in a document that we refer to as the Executive Determination) are confused and create ambiguity. The rules have a number of technical deficiencies, and the rule on travel expenses is unworkable in practice.

At an operational level, our testing of transactions did not show any pattern of major spending irregularities. We found only occasional examples of transactions that we considered were arguably or clearly outside the rules. We also concluded that the basic design of the financial management processes is sound, and the finance team within Ministerial Services is regarded as responsive and helpful.

Ministerial Services provides useful training and guidance for senior private secretaries, but there is scope to do more and target it better.

However, we found weaknesses in the underlying administrative policies, procedures, and practice:

• There is considerable scope to improve the guidance and information provided to senior private secretaries through the Ministerial Office Handbook and other mechanisms produced by Ministerial Services, and to streamline and simplify the content. In particular, we are concerned that the status of policies, requirements, and guidance is not clear, and at times the guidance leaves too much to individual judgement and contains conflicting advice.

• The documentation and explanations accompanying transactions were often poor, or the relevant information was not included in or referred to in the main financial records. Although the spending might have been appropriate, the audit trail to demonstrate that was too often inadequate.

• Procedural requirements were not always followed, or there was no evidence of them having been followed, and it was not clear from the guidance which requirements were significant.

• There is a risk that internal controls are not fully effective because staff can have different understandings of the various roles in the certification and approval processes.

• Senior private secretaries who are not applying spending rules or procedures properly can remain unaware that there is anything wrong with their practices because Ministerial Services may not always draw the problems to their attention.

We have concluded that the basic design of the procedures is reasonable but they need further development. The weaknesses we have identified in the financial controls expose Ministerial Services and Ministers to greater risk of inappropriate spending and criticism. More attention needs to be given to the basics of financial accountability.

Our overall conclusion is that, taken as a whole, the current Ministerial Services system for managing spending is an unsatisfactory basis for providing support to Ministers. There is an obvious risk that Ministers will be held to account for failures in the underlying system, which would unnecessarily damage public trust in our political leaders. As one commentator has recently written:

The good name of MPs is important to them, and to us. When administrative uncertainty creates an impression of opportunism nobody is well served. That administrative uncertainty comes from the complexity of the rules and the separation in the treatment of ministers and other MPs. That complexity can trap MPs and officials.1

What needs to change

The move to greater disclosure of parliamentary and ministerial spending is part of an international trend. It is clear that the public expects to be able to scrutinise this use of taxpayer funds as much as any other.

It is important that the supporting system adapts to meet the challenges of regular scrutiny. It needs to be more transparent and rigorous, so that the public can be assured that appropriate financial controls are in place and operating effectively.

We have given considerable thought to what needs to change to address the problems we have identified. We set out our recommended directions for change in Part 8. Importantly:

• the Department's responsibility for the system, and all spending under it, needs to be put beyond doubt;

• the system needs a clear and coherent legal basis;

• the Executive Determination should set out clear and workable rules;

• administrative policies and procedures should help people to get it right; and

• financial records should show compliance with the main requirements.

The first of these is perhaps the most important. In my view, the system suffers because the Department sometimes appears uncertain about the scope of its responsibilities for administering this part of the Vote, and about the extent of its role in providing strategic and policy advice on developing the system and its supporting administrative processes to meet future challenges. On occasion, Ministers have challenged the role of the Department's officials and whether they should be questioning Ministerial spending. In my view, the responsibility of the Department for the proper administration of Vote Ministerial Services needs to be put beyond doubt. This is an important first step, if major improvements are to be achieved.

Given the political context of the Department's work, this has the potential to be a fraught question. That is why I have taken the unusual step of making a recommendation directly to the responsible Minister, in this case the Minister responsible for Ministerial Services. I am recommending that the Minister formally confirm to the Department and all Ministers that he expects the Department to play this role, and that Ministers should support the Department's officials as they carry out their responsibilities. The end result should be a stronger system that better supports and protects Ministers, by enabling officials to catch and correct mistakes early and as a matter of routine.

My final comment is at the heart of what needs to change. The Speaker and the Prime Minister have taken steps to make the parliamentary and ministerial systems more open by directing that more information be regularly released. However, there is a difference between being open with information and having a system that is transparent.

In a transparent system, the rules, policies, and financial management processes are all clear and accessible and can be easily understood. The words that are more commonly applied to the parliamentary and ministerial systems are "complex" and "opaque". Personally, I have found the myriad rules, entitlements, and procedures puzzling.

We are recommending that the legal basis for the Ministerial Services system be revisited from first principles, because it is not appropriate for such a basic and central function of government to be based on legally ambiguous arrangements. If the Law Commission's review of the Civil List Act 1979 results in major reform of the overall support arrangements for members of Parliament and Ministers, the review that we are recommending should be done in conjunction with that work. If major reform does not eventuate, the review we recommend still needs to identify what scope there is to address the current legal problems within the current arrangements.

As that work is carried out, I encourage those doing it to put the principles of transparency and accountability at the heart of what they build. As we said in our 2009 report on ministerial accommodation:

The system needs to be able to be understood not only by those administering it, but also by those to whom service is being provided, and by the general public who fund it.2

In closing, I note again that, although we have found the overall system wanting, our limited sampling of transactions has not revealed any patterns of major wrongdoing. There may be occasional errors, or instances of poor judgement, but in our sample they were few and relatively minor in nature. I am heartened by this because it suggests a high degree of integrity among those working at this level in government. However, that is not a reason to be complacent or to continue with a flawed system. If we want to avoid problems in the future, the system needs to change.

Lyn Provost

Controller and Auditor-General

8 December 2010

--

1: Prebble, M (2010), With Respect: Parliamentarians, officials, and judges too, Institute of Policy Studies, page 200.

2: Auditor-General's decision on parliamentary and ministerial accommodation entitlements, October 2009.


ENDS

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