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section one: special reviews |
Ministerial Office Expenditure
Background
In March 1999 all Ministers and Chief Executives of host agencies were notified of a review by the Audit Office of the adequacy of documentation supporting payments made at the request of Ministerial Offices. The audit scope was to consider all payments other than payroll related effected from 1 October 1998 to 30 June 1999. In September that notification was extended to all Ministers and host agencies newly appointed after the March 1999 election. Post-election Cabinet and portfolio changes resulted in twenty-nine ministerial office/host agency arrangements operative during the period, to service the twenty-one Ministers of the Crown.
The overall purpose of review was to determine whether host agency authorising and certifying officers properly examine claims in accordance with the requirements of the Public Finance and Audit Act 1983. The task followed earlier audit findings of Ministerial and Ministerial Office Travel (Volume Three of the Auditor-General’s Report to Parliament for 1996) that documentation supporting travel claims was often inadequate to demonstrate authenticity, and that host agencies were unable to properly scrutinise claims and were averse to seeking the necessary additional information. That report stated the intention of subsequent reappraisal.
To avoid duplicated effort, prior to and during the review, enquiries were made of Ministers’ office audits undertaken by the Premier’s Department. In 1993 the Department adopted a policy of conducting full office audits on a two-year cyclical basis. The Audit Office was unable to gain assurance from departmental activity as the most recently completed (September 1998) broad scope office review considered transactions to late 1997. Accordingly the Audit Office undertook reviews of all Ministerial Office/host agency structures operative from October 1998 to June 1999.
Audit Objectives
The specific objectives of the review were to determine whether:
LEGISLATION
Section 12 of the Act requires prior authorisation be given by an officer acting within the limits of conferred delegation before any commitment or obligation is created that requires a payment be made. Premier’s Memorandum 96–28 advised the Premier’s consent to all Ministers giving written authority to their Chief of Staff to incur expenditure of up to $2,000 in respect of day to day running of the Ministerial Office. The memorandum also enabled Ministers to increase and broaden the office staff delegation base with the Premier’s consent. Above these, host agency delegations apply.
Treasurer’s Directions 180.01 to 191.06 issued pursuant to the Act govern the examination, certification and processing of claims. Essentially these require the assembly and attachment of all necessary supporting documentation, including evidence and certification of the proper exercise of section 12 authority, and other certifications relating to receipt of goods or services, charge rates, calculation and costing accuracy, and funding availability.
Section 13 of the Act requires that an officer of an authority (ie the host agency in the case of Ministerial Offices) shall not authorise the payment of an account unless approved for payment by a person holding a section 12 delegation and the Treasurer’s requirements are met. Those requirements are set out in Treasurer’s Directions 200.01 to 200.09 and focus on control procedures designed to ensure the authenticity of claims.
Not only is the submission of full supporting documentation essential to enable host agencies to ensure the compliance and probity of Ministerial Office claims at the time of payment, but also to ensure full records are officially archived. Any locally maintained documentation and knowledge is generally not accessible once offices close, and risks loss with a change in government. In planning the audit reviews, the Audit Office was informed of an unacceptable arrangement whereby expenditure records of a former Minister were retained at the Minister’s Office after payment. As this was contrary to Treasurer’s Direction 232.01, requiring payment office retention, the then Auditor-General raised the matter in March 1999 with the Chief Executive of the host agency. All records were recovered from the Minister’s Office following closure in April 1999.
Audit Findings
Authorisations to Incur Expenditure
The general conclusion, across Ministerial Offices, is that section 12 delegations are often not properly exercised through the provision of formal authorisations to incur expenditure before purchase commitments are made. As well, the limitations of financial delegations are not always considered where the authorisations given relate to ongoing services, whether or not these are subscribed to under a formal agreement with a terminal or open date. This latter point may be representative of a more widespread belief in the public sector that financial delegation limitations apply on an individual invoicing basis, rather than to the total value of the full stream of payments the authorisation generates. This may rest on a lack of clarity in the Treasurer’s Directions.
Fostering these practices is a perception in some host agencies that a subsequent additional signature of claim documents by sufficiently empowered agency delegates exonerates cases in which payments exceed the section 12 expenditure authorisations of Ministerial Office staff.
There is common misunderstanding among Chiefs of Staff (or other delegated officers) that the endorsement of claims or covering vouchers as ‘approved for payment’, as required by Treasurer’s Direction 180.01(9), satisfies the section 12 requirement. But the very intent of section 12 that authorisation be given before any expenditure commitment arises - precludes it being given on documents received or created after the purchase has been effected. The format of the standard voucher forms often used by host agencies encourages the misconception.
It would be naive to suggest that the failure to grasp the ‘prior to purchase’ requirement for section 12 authorisation is limited to Ministerial Offices. It probably occurs commonly across the public sector. But so too does the likelihood that prior oral authorisations are given for most cost impacting activities. Unless documented, existence of approvals might not be demonstrable.
The generally low limit of section 12 delegations to Ministerial Office staff (in most cases a $2,000 delegation solely to the Chief of Staff) has implications for a significant number of period arrangements that apply. Many of these relate to the continued provision of basic and essential services from proprietary or government contract suppliers, or arranged by other agencies in accordance with government policy (eg premises rental, Ministerial motor vehicle provision). The section 12 authorisation in instances where there is no discretion might be considered perfunctory. In most cases where Ministerial Offices organise their own period arrangements (for leasing of office equipment, media monitoring subscriptions, press release distribution and faxing, personal and office newspaper supplies, indoor plant hire and flower supply, etc) expenditure records and enquiries gave no indication of the use of period orders or file approvals authorising payment streams. The usual practice was for costs to be ‘authorised’ upon receipt of individual supplier claims, rather than considered as a single commitment covering a period of time.
Host agencies were unable to readily provide details of future commitments for the provision of on-going services, as they were largely unaware of contracts, agreements and arrangements in place. Some of these undoubtedly continue arrangements made by parties no longer involved, and some might involve minimum contract/agreement periods and periods of notice for cancellation. As Ministerial Offices can close at short notice – particularly following elections - financial loss might occur if current agreements and cancellation provisions are unknown.
Certification of Supply of Goods and Services
Appropriate certification of the supply of goods and services was formally provided for almost all sampled transactions. In cases where not specifically provided (as required) confirmation was received that it could be read into other certifications provided by Ministerial Office and departmental liaison staff that claims were ‘approved for payment’. It was stated to be a conscious consideration of that process.
Samples yielded several instances where goods and services were acquired by host agencies and charged to Ministerial Office funds without any indication of purchase knowledge by office staff. In view of public interest in Ministerial Offices, it would be prudent for Chiefs of Staff to ensure these transactions are reviewed. They should be readily identifiable from monthly expenditure reports host agencies are required to supply, and offices are expected to check.
Adequacy of Payment Supporting Documentation
Aside from the lack of purchase authorising approvals, vouchers and claims were generally accompanied by essential supporting documentation, including full original supplier invoices and receipts. Some minor scope for expansion was possible and is advised where summary or duplicate documentation is provided, particularly where the nature of expense merits explanation to avoid any misconception of personal benefit.
Other Observations
Travel Matters
The review revealed good knowledge of conditions and adherence to policy relating to travel. However it was again observed that travel approval forms (providing s12 authorisation) were rarely supplied in conjunction with travelling claims, with the standard claim vouchers only allowing for minimal disclosure of the travel purpose. Some significant delays (up to and exceeding 12 months) were noted in payment of claims in certain offices, and the acquittal of travel advances and credit card transactions.
Claims for air charters were seldom accompanied by information providing assurance of compliance with the Premier’s guidelines designed to show transparency and economy in arrangements.
Inter Office Comparisons
The review provided an opportunity to extract and compare some expenses and practices across Ministerial Offices. As might well be expected with Ministerial Offices needing to subscribe to individual host agencies administrative and financial arrangements, some variations in procedures and outcomes were encountered. In some cases common policy would standardise practices. In others, recognition of the differences needs to be given when comparing periodic financial reports submitted to the Premier for central oversight.
A particular area of significant and disparate costs related to the use of media monitoring and facsimile distribution services. Media monitoring costs are often self generated (from the Minister’s own media involvement), and there is a distinct probability of a degree of duplicated information being obtained by Ministers and government agencies. Some Ministers use multiple monitoring agencies in addition to the Premier’s Department facility. No instances were noted in any office of taking a prompt payment discount (2.5 per cent for payment within 7–14 days) offered by the major media monitoring service provider, to which annualised payments for all Ministers approximated $400,000.
A sample of transactions across offices provided no indication of inappropriate hospitality, entertainment and staff welfare expense, with printing payments related to office needs.
Conclusions
The principal finding of the review is a lack of evidence of strict compliance with section 12 of the Public Finance and Audit Act 1983. This was not unexpected and is probably not restricted to the Ministerial Office/Host Agency situation.
If the value of the section 12 requirement is viewed solely as seeking to ensure that only appropriate expenses are incurred, the review shows this control exists, primarily through the strong interest taken by most Chiefs of Staff in endorsing payment requests as ‘approved for payment’. That process also provides the opportunity for conscious consideration whether the documentation to be passed on to the host agency completely assures probity and transparency in financial dealings.
However the section 12 requirement also exists to ensure the initial recording of expenditure commitments (whether ongoing or not), and to ensure that proposed commitments can be accommodated within budgetary provisions.
The present Review of NSW Financial and Annual Reporting Legislation seeks to place enhanced focus on managing for performance and results as opposed to specifying procedural administration and requiring compliance. It is expected this will affect the existing section 12 prescription for the manner in which goods and services are acquired, but not the budgetary implications that result.
Furthermore the proposed risk management and internal control approach of that Review strengthens the present best practice in relation to internal audit by requiring mandatory establishment of an effective internal audit function for all NSW Public Sector agencies. That has not been operative in Ministerial Offices since late 1997.
The relevant transactions that support the foregoing comments, and other minor observations and recommendations of the review, are to be referred to each Minister and Host Agency Chief Executive, with composite reporting to the Premier’s Department. It is responsible for policy and oversight of all Ministerial Offices.
Volume Two of the Auditor-General’s Report to Parliament for 1999 included details of a Crown Solicitor’s advice regarding the investment powers under the Public Authorities (Financial Arrangements) Act 1987 (PAFA) of controlled entities of statutory bodies (refer page 28 of that Report).
Since that time, the Treasurer has advised the Auditor-General that:
… Treasury has created a PAFA Act Committee to review the administration of the Act and this is one of a number of issues that they are currently considering. Such an issue cannot be considered in isolation, as it will be affected by decisions made in a number of other areas.
It is considered that the issue arising from the Crown Solicitor’s opinion centres on ensuring that the PAFA Act covers all controlled entities. Treasury shares your concerns that differential risk management practices between a controlled entity and controlling entity could expose the State to unacceptable business risks.
The Committee is currently discussing these issues, amongst others, with the Crown Solicitor and the Parliamentary Counsel. Once a recommended course of action is determined, I will provide you with further details.
The Audit Office will continue to monitor the progress of the Committee and report any significant developments.