This publication supersedes Guidance to Departments, in Relation to Crown Entities, June 2006 ISBN (Print)

Transcription

1 Treasury: v4

2 This publication supersedes Guidance to Departments, in Relation to Crown Entities, June 2006 ISBN (Print) ISBN (Online) The Guide may be updated and reissued from time to time. To confirm your document is current, go to This Guide has been updated by the State Services Commission and the Treasury. Please send any feedback to Crown Copyright This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to the Crown and abide by the other licence terms. To view a copy of this licence, visit Please note that no departmental or governmental emblem, logo or Coat of Arms may be used in any way which infringes any provision of the Flags, Emblems, and Names Protection Act Attribution to the Crown should be in written form and not by reproduction of any such emblem, logo or Coat of Arms. Internet This document is available on the State Services Commission s internet site. The URL for this site is

3 Contents State sector reform legislation... 1 The Crown entity system... 2 About this guidance... 2 What are the monitoring department s functions?... 3 A Roles and relationships... 4 B Appointing and maintaining an effective board... 6 C Setting expectations and direction... 7 D Monitoring performance E Administering appropriations F Administering legislation G Tendering policy advice Appendix 1: Ministers powers in relation to Crown entities Appendix 2: Central agencies statutory responsibilities Appendix 3: Crown entities and accountability to Parliament Statutory Crown Entities: A Guide for Departments i

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5 Guidance for departments in relation to statutory Crown entities The work of Crown entities is immensely important for achieving results for New Zealanders. Crown entities provide many of the services provided by the State sector. In order to deliver better services, government departments and Crown entities need to work well together. The Government expects departments and Crown entities to see themselves as part of the State. Changes were made in 2013 to the Crown Entities Act 2004 (CEA), along with the State Sector Act 1988 (SSA) and the Public Finance Act 1989 (PFA), to support the focus on results and on collective impact from agencies working together or using common approaches 1. State sector reform legislation Amendments to the Crown Entities Act included: strengthening the alignment of Crown entities through expanded board duties for statutory Crown entities supporting functional leadership by expanding the scope for the use of directions to support a whole of government approach formalising the role of the monitor new powers for the Minister of State Services to request information to assess overall State services capability and performance, streamlining planning and reporting from 1 July 2014 by providing for the possibility of four-year Statements of Intent, more flexible funding, and more meaningful reporting on what is intended to be achieved and what has been achieved, and simplifying the regime applying to Crown entity subsidiaries. The Public Finance Act amendments make it clear that departmental chief executives are responsible for advising on the efficiency and effectiveness of non-department spending. The changes also added new multi-category appropriations to give more flexibility to align funding with joint programmes across departments and Crown entities. Amendments to the State Sector Act included the requirement to provide free and frank advice and placed a stewardship responsibility on departmental chief executives. Stewardship includes the department s role as a monitoring agent and its role in administering legislation. Changes to the State Sector Act also included new provisions for Government Workforce Policy Statements that can apply to Crown entities. 1 The legislative changes were a core element of the State sector reforms in response to the 2011 Better Public Services Advisory Group Report and the 2010 Crown Entity Compliance Cost Review Group s report to the Minister of Finance. Statutory Crown Entities: A Guide for Departments 1

6 The Crown entity system There are a large variety of Crown entities in New Zealand, but one thing they all have in common is the need to have an effective relationship with their Minister and monitor (usually a department). Effective relationships between government and Crown entities are critical to the delivery of quality public services and it is crucial that we get them right. Trust and mutual respect are at the heart of these relationships. Legislative and structural reforms cannot deliver that though they can help provide the building blocks. What is needed is that: Ministers engage thoughtfully with their portfolio Crown entities Crown entities understand the expectations that they contribute to wider government priorities while managing day-to-day operational decisions at arm s length, and departments recognise the role and expertise of Crown entities, and the importance of effective performance monitoring and relationship management. About this guidance This guidance looks at how departments support Ministers with their Crown entity responsibilities and meet their own statutory obligations. It is framed around a typical Crown entity which has a board, and a single Vote Minister and monitoring department 2, but the guidance does apply to other situations. The guidance should be read together with the It Takes Three: Operating Expectations Framework and monitoring departments own adaptations of this framework, which sets out the respective roles of the monitoring department, the Minister and the entity (see: For more resources, see also the Monitoring, Appointments and Governance Network (MAGnet) site: The updated Guide for Ministers 3 includes the changes in the Crown Entities Act (CEA) enacted in This guidance for departments has adopted a different approach to that of the former 2006 guidance. Rather than repeating what is in the Ministers Guide, this document simply cross references the relevant section using the symbol. The Ministers Guide provides a comprehensive listing of what is expected of a monitoring department. This guidance complements the Ministers Guide by discussing how a department might go about its role, and highlights the resources and material that might be relevant. This guidance applies to departments engagements with statutory Crown entities Crown agents, Autonomous Crown entities (ACEs) and Independent Crown entities (ICEs). 2 3 Where Ministers agree, monitoring may be undertaken by a different department from that which provides policy advice and other services for the Minister. This is the case for several entities monitored by the Treasury. Statutory Crown Entities: A Guide for Ministers, republished June 2014, see 2 Statutory Crown Entities: A Guide for Departments

7 See Guide for Ministers pages 5 6 for a discussion of what is a Crown entity, and the different categories of Crown entities. What are the monitoring department s functions? A department has a two-fold role: as an agent of the Minister to help the Minister discharge his or her responsibilities (unless directed otherwise); and to undertake other functions such as administering appropriations and legislation as required by statute. Ministers may use other agents, including staff from their private offices, for some tasks (including monitoring), but even in these situations, the department will normally have a policy and/or Vote administration role to play. The 2013 amendments to the CEA deliberately included discussion of the role of monitors (s. 27A) alongside Ministers roles in relation to Crown entities (s. 27). See the Guide for Ministers pages 7 9 for a discussion of the roles of the various players, including that of the department relative to the Minister. Departments work in two capacities: to help their Ministers to undertake their roles and responsibilities and to undertake other statutory functions. The Guide for Ministers emphasises that assistance should be provided to the Minister on three main monitoring functions: i ii iii appointing and maintaining an effective board setting direction and performance expectations monitoring performance. In addition, departments undertake other statutory functions on their own behalf including: iv v vi administering appropriations administering legislation tendering advice to Ministers, and vii undertaking any other activities required under statute (CEA s. 27A). This guidance is organised around the above functions. The relationship between a Minister and a Crown entity is more at arm s length than that between a Minister and a department. While a Minister can directly control a department on almost all matters (other than some exceptions such as staffing), the Minister s ability to exercise control over arm s-length bodies like Crown entities is more indirect. The specific powers of Ministers in relation to Crown entities are listed in Appendix 1 and discussed in the Guide for Ministers. See table and accompanying discussion in the Guide for Ministers on pages 6 7. Statutory Crown Entities: A Guide for Departments 3

8 A Roles and relationships Good relationships between the responsible Minister, Crown entity board and their senior managers, and the monitoring department and any policy department are essential if the entity is to succeed and flourish. These relationships must be purposeful rather than having good relationships for their own sake. Key Scrutiny of performance Accountability Answerable to Service provision Accountable = owed to the person who assesses performance and has the authority to decide on rewards and sanctions Answerable = owed to persons/agencies in so far as they exercise a statutory or delegated authority to make a legitimate and lawful request for information The effectiveness of Crown entities depends on Ministers, the entities and monitoring departments working well together. The roles, responsibilities and operating expectations for all parties are set out in It Takes Three: Operating Expectations Framework. The SSC website that hosts this framework provides guidance in the forms of rules, tools, advice and examples of good practice ( The It Takes Three framework shows how the roles and responsibilities of Ministers, the monitoring department and Crown entities fit together. 4 Statutory Crown Entities: A Guide for Departments

9 Effective monitoring is built on a foundation of good relationships and a shared understanding of each other s business. Interaction at the senior management and staff levels of each organisation underpins good relationships between boards and Ministers. Crown entity boards, chief executives and senior managers, as well as departments, must ensure effective and purposeful working relationships are in place. While it is important for the monitoring department to have a good level of knowledge of entity operations, in large entities in particular, entity management and staff often have the best access to the understanding, detailed knowledge and performance data underpinning a good monitoring relationship. Productive relationships recognise the statutory role and the responsibilities of each party. Departments can help Ministers to put such arrangements in place. A memorandum of understanding or relationship letter between a department and a Crown entity is often used to clarify the services that a department performs whether on behalf of the Minister, to assist the Minister in carrying out his or her functions, or to deliver on the department s statutory obligations. Monitoring departments should engage with entities as a friendly critic (at times acting as an advisor or sector leader) without prejudicing their primary role as the agent of and adviser to the Minister, or undermining the board s direct lines of accountability to the Minister. Striking a balance will not always be easy. The separation of Crown entities from the legal Crown, coupled with Ministers expectations for professional relationships between departments and entities, can make this a complex relationship to manage. This relationship will work better if: the Minister, department and entity have a clear and agreed understanding of their respective roles the department and entity represent the others views in accurate terms, and the Minister, department and entity each adopt a no surprises approach. 4 In its 2009 review 5, the Office of the Auditor-General (OAG) identified three critical success factors for effective entity monitoring: 1 Strong working relationships enabling department communication with the Minister, board and management free and frank where necessary 2 Good overall sector knowledge and awareness of connections. Can be independently aware of emerging issues and risks 3 Effective mechanisms for day-to-day work (enhances ability to identify issues and risks). See the Guide for Ministers pages 7 9 for a more detailed discussion of the roles and responsibilities of the key players. 4 5 For an entity making quasi-judicial rulings, no surprises does not include advance notification of its decisions. The Minister could, however, expect to know of the ruling no later than other affected parties. See Statutory Crown Entities: A Guide for Departments 5

10 B Appointing and maintaining an effective board A priority for departments is to help the responsible Minister ensure an effective board is in place. Appointing a board is one of the few direct levers that ministers have in relation to Crown entities. An effective board will: have members with the competencies (e.g. leadership, and professional and sector specific skills) needed to understand the entity s purpose and functions help the entity articulate a robust strategic direction select and mentor an appropriately skilled chief executive hold management accountable for effective delivery and performance understand the environment within which it performs its duties, including the sometimes competing interests and demands of different stakeholders work well as a collective, with the chair getting members to work as a team review its own performance and develop succession plans, and recognise the role(s) the entity plays within government as a whole and with related departments, entities and other agencies. An effective board requires both hard and soft factors working together. By hard factors we mean objective characteristics such as the size of the board and the mix of members. The soft factors refer to subjective characteristics such as group dynamics and behaviours, and a sense of shared responsibility. Simply getting the structure right is only part of the story of achieving an effective board. As Edwards and Clough (2005: 26) say, we need to focus on interrelationships and behaviours and the policies and procedures that support effective behaviours. 6 An effective board will provide good governance of the entity, engage with the Minister on strategic direction and performance issues, and work cooperatively with the monitoring department. The key levers that the Minister can use to maintain an effective board are shown below. 6 Edwards, M., and Clough, R. (2005) Corporate Governance and Performance: An exploration of the connection in a public sector context. University of Canberra Corporate Governance Project, Issues Series Paper No Statutory Crown Entities: A Guide for Departments

11 Departments have a key role in engaging with the board chair on identifying upcoming vacancies, then running the appointment process for the Minister, and helping to support new board members through the induction process. See the Guide for Ministers pages for a discussion of what Ministers should be able to expect from their department on appointing and maintaining an effective board. C Setting expectations and direction Amendments to the CEA in 2013 streamlined Crown entity planning and reporting provisions. The Treasury has a suite of guidance to help entities with planning and reporting. 7 The planning cycle starts with a strategy development phase, during which an effective monitoring department can add real value for the board and Minister, for example through its wider policy, sector and system perspectives. These broader perspectives can be used to inform expectations for the entity over the medium to long term. 7 See and Statutory Crown Entities: A Guide for Departments 7

12 The stages in a typical cycle are shown in the diagram below. The new Statement of Performance Expectations (SPE) contains the annual performance information previously included in the Statement of Intent (SOI). As a result, an entity does not need to produce a new SOI every year. However, the Minister has the option of requiring a new SOI at any time. Accordingly, the monitoring department needs to advise the Minister on whether the SOI needs updating or replacing. The CEA requires entities to assess and describe their performance, but is less prescriptive than formerly about how to do this. There is now much more flexibility for agencies to express: what is intended to be achieved how performance is to be assessed when performance is reported, and where performance is reported. Requirements such as set out the specific impacts, outcomes or objectives an entity seeks to achieve and words such as measures and standards have been removed. Entities have many frameworks and methods to choose from that can assist in demonstrating performance. These include: the Investment to Outcomes model; case studies; and special assessment models. See the Guide for Ministers pages for a discussion of what Ministers should be able to expect from their department on SOIs and SPEs. 8 Statutory Crown Entities: A Guide for Departments

13 A department will advise and support its Minister and the entity through the planning processes shown in the Figure below. Strategic Engagement Engagement, for example through a letter of expectations, which triggers a conversation between the Minister and board chair: provides sufficient time for the board to consider the expectations and to respond informs the planning for and content of: the next SOI the next annual SPE. Statement of Intent covers at least the next four years but must be refreshed at least every three years [s.139(3)]. May be required by the Minister at any time [s.139a] encourages a focus on strategic direction [s.141(1)] is less prescriptive about how a Crown entity explains and reports its strategic objectives [s.141(2)] draft is provided to the Minister at least two months before the start of the financial year to allow for good engagement [s.146] published on the entity s website as soon as possible after it has been finalised, BUT may be delayed if it takes effect after Budget Day [s.149(1)] may be tabled in the House on its own, or with the Annual Report for the previous financial year, or with other documents [s.149(3)&(4)]. Annual Statement of Performance Expectations includes a concise explanation of what is intended to be achieved [s.149e(2)] includes a concise explanation of how performance is to be assessed [s.149e(2)] includes forecast financial statements [s.149g] draft is provided to the Minister at least two months before the start of the financial year [s149i] must be published on the entity s website as soon as possible after being finalised, BUT may be delayed if it takes effect after Budget Day [s.149(l)(1)] may be tabled in the House on its own, or with the Annual Report for the previous financial year, or with other documents [s.149l(3)&(4)]. Source: Ministry for Culture and Heritage Statutory Crown Entities: A Guide for Departments 9

14 The key levers that the Minister can use in the direction-setting process are shown below. D Monitoring performance A major reason for establishing Crown entities is to take advantage of governance arrangements that are different than those for a department. Monitoring activity must recognise the role of the board as the governing body of the entity. The monitoring department should not attempt to be a substitute for the board or management. It should focus on advising the Minister whether the entity s strategic direction complements Government and sector goals and legislation, advising on performance, and adding value where it can through its advice to the Minister and its work with the entity. A central facet of a department s monitoring responsibility is to provide Ministers with an independent view of the performance of the entity. This includes capability issues that may impede performance and any emerging risks and issues that may damage the organisation s reputation. What this advice covers, and what monitoring is proportionate, will vary by entity. Departments will have to make judgments about the nature and depth of engagement and analysis required to provide the advice required. For example, light touch monitoring may be proportionate where the risk assessment suggests that there are no material causes for concern that are beyond the capacity of the Board and management to deal with. 10 Statutory Crown Entities: A Guide for Departments

15 Monitoring is an art, not a science, and what is good practice is still emerging. Departments are experimenting with various monitoring approaches, including more formal risk assessment tools, relationship assessment tools, monitoring plans, periodic reviews (discussed further below) and evaluations undertaken to review policy effectiveness. In future, departments will have to address how to use the results from any Performance Improvement Framework (PIF) undertaken for an entity (see discussion under G Tendering Policy Advice, below). Monitoring departments should consider having explicit agreements with their Minister that set out their monitoring responsibilities and approach. Where a department has significant monitoring responsibilities, any agreement should cover the: specific tasks that will be undertaken monitoring priorities based on the risks faced by the entity relationship management arrangements level and type of monitoring capability that will be sustained kind of information and analysis that will be provided to the Minister, and frequency with which the above information will be supplied. Where a department monitors a group of entities in a sector, monitoring agreements could also include: the effectiveness and efficiency of cross-agency initiatives whether there are gaps in delivery or expected results, and what changes are needed to ensure better integration and performance across a portfolio of entities. The key levers that the Minister can use to monitor performance are shown on the following page. Statutory Crown Entities: A Guide for Departments 11

16 See the Guide for Ministers pages for a discussion of what Ministers should be able to expect from their department on monitoring performance. Many monitoring departments set milestones around which they organise major activities, and make sense of what can otherwise be a noisy environment. They: run meetings with chairs of boards and senior staff to agree the results sought for the entity or sector maintain monitoring and reporting calendars, and schedule preparatory work maintain risk assessments at the sector and entity level to help the department prioritise tasks as they come in, and commission proactive work when needed work together to ensure performance information is available commission benchmarking studies or in-depth analyses and evaluations, and run rolling reviews of major entities or interventions. Monitoring departments cannot and should not monitor everything. They should focus monitoring activity on major opportunities and risks, both across the portfolio they monitor, and for individual entities. Detailed reviews and in-depth monitoring should reflect Ministers needs, the scale of investment in and spending on entities, the risk posed by entities, and the opportunities that could be realised across the area. For more resources on monitoring see the MAGnet site: 12 Statutory Crown Entities: A Guide for Departments

17 E Administering appropriations In 2013, the Public Finance Act was amended to make it clear that departmental chief executives were responsible for advising on the efficiency and effectiveness of nondepartment spending including that appropriated for use by Crown entities. The Crown Entities Act was also amended to include explicitly the monitoring department s role of administering any appropriations, where relevant 8. Departments have a number of important financial management roles, including supporting the budget process, meeting the department s Vote administration roles, and providing advice on the efficiency and effectiveness of spending. Departments should support government budget processes by: distributing budget round information (timetables, templates, etc.) to entities working with entities to align entity planning and budget processes developing the Four-year Plan (covering both departmental and non-departmental expenditure) for the Vote(s) the department administers working with entities to understand, improve and critically assess proposals ranking initiatives against other initiatives for the sector, and ensuring all approved initiatives are reflected in accountability documents (e.g. SOI, SPE 9 ), after budget decisions are released to Crown entities. Departments also have Vote administration roles for the financial management and financial requirements for non-departmental expenditure. These include: providing budget and budget update coordination and quality assurance preparing the estimates and other information that support the budget reporting on expenses and capital expenditure against appropriations, and advising the Minister on financial and non-financial performance. For more on Vote administration see: Monitoring departments should engage with entities as a friendly critic (at times acting as an advisor or sector leader). Under the Public Finance Act (s. 34(2)(b) and s. 35(b)) departmental chief executives are responsible for advising the appropriation Minister on the efficiency and effectiveness of expenditure from appropriations administered by the department. 8 9 As noted previously, in some cases monitoring is undertaken by a different department from the department that has policy and Vote administration responsibilities. CEA s. 170 (which takes effect on 1 July 2014) provides A responsible Minister may set standards, terms, and conditions in respect of any reportable class of outputs that a Crown entity proposes to supply. This will replace the previous formulation of s. 170 which allowed responsible Ministers to require entities to have an output agreement. Statutory Crown Entities: A Guide for Departments 13

18 Ministers should be presented with all requests for increases in compulsory levies, fees and charges well ahead of the proposed implementation date. As for budget bids, departments should work with entities to improve requests for levy increases, but also assess them critically. The Minister should be advised on whether costs can be absorbed, why the levy represents value to levy payers, how consultation with those affected by the change will be managed, and any risks arising from the increase. F Administering legislation Every statute specifies one or more administering departments, or is otherwise assigned by the Prime Minister to administering Ministers and departments (see: Prior to the 2013 amendments, there was little guidance or specification of the duties and responsibilities of an administering department. Similarly, the Cabinet Manual is virtually silent on the Minister s role in monitoring and reviewing legislation. The amendments to the State Sector Act in 2013 have extended the responsibilities of chief executives to include a stewardship role that specifically mentions managing the legislation administered by the department. This role is analogous to the department s role of maintaining and caring for physical assets on the agency s balance sheet or the assets that they are administering on behalf of the Crown. To operationalise this new responsibility, Cabinet agreed to a set of initial expectations for the stewardship role over government regulation [CAB Min (13) 6/2B refers]. Departments are now required to maintain a database of legislative instruments they have responsibility for, and gather information in order to monitor and assess the operation of regulatory regimes. The Treasury has provided detailed guidance to support Cabinet s expectations. See: regulation@treasury.govt.nz for more information. G Tendering policy advice There is a long standing convention that departments should give free and frank advice. The Cabinet Office Manual (2008 at 3.52) states Advice given to Ministers must be honest, impartial, and comprehensive. It must also reflect the priorities determined by the government of the day. During the policy development process, the advice given by officials should be free and frank, so that Ministers can take decisions based on all the facts and appreciation of all the options. Once policy is determined, departments are responsible for its effective implementation. The 2013 amendments to the State Sector Act made explicit in law the requirement that free and frank advice is provided to Minister. Advice on establishing a potential new Crown entity needs robust organisational analysis to evaluate whether a Crown entity is in fact the most appropriate legal form to undertake a particular function See SSC paper on Reviewing the Machinery of Government, 14 Statutory Crown Entities: A Guide for Departments

19 As Crown entities operate in a dynamic and changing environment, there is a need to periodically review the policy settings and intervention logic surrounding the entity. The State Services Commission s Performance Improvement Framework (PIF), including the Four-Year Excellence Horizon at provides a helpful resource to review entity clarity of purpose, value-add for New Zealand and strategy to deliver that value. Periodic reviews also need to consider whether the category of statutory Crown entity remains the best choice of organisational form and the policy setting applying to the entity remains valid. Other jurisdictions such as the UK Cabinet Office provide useful guidelines for periodic reviews of non-departmental public bodies: If further material is required, there are three particular references that are relevant to policy advice in New Zealand: On the development of policy see Baehler, K., and C. Scott. (2010) Adding Value to Policy Analysis and Advice. UNSW Press. On the development of policy capability see State Service Commission. (1999) High Fliers: Developing High Performing Policy Units. State Services Commission Occasional paper No. 22. On the craft of providing advice see Behm, Allan, Lynne Bennington, and James Cummane. (2000) A Value-Creating Model for Effective Policy Services. Journal of Management Development 19 (3): Statutory Crown Entities: A Guide for Departments 15

20 Appendix 1: Ministers powers in relation to Crown entities Effective boards and effective working relationships with Ministers and departments are critical to improving the performance of Crown entities. But a range of other instruments are available to Ministers wanting to effect change. Ministers have specific powers under the Crown Entities Act These powers can vary depending upon whether the entity is a Crown agent, an ACE or an ICE, or there is an entity-specific exemption. Examples of powers available to Ministers are to: participate in the process of setting and monitoring the entity s strategic direction and annual expectations (this will normally start with letters of expectation) request information review operations and performance appoint, reappoint and remove board members determine the remuneration of members of Crown agents and ACEs in accordance with the fees framework seek court orders restraining or requiring action under relevant legislation direct an entity to perform new functions (if its legislation allows) direct changes to an entity s SOI or SPE, and give statutory directions (Crown agents and ACEs). Ministers have additional powers e.g. as funders to: approve or decline funding or increases in funding for specific outputs approve or decline increases in levies (or other sources of funding) contract for the supply of performance information contract for the supply of additional outputs make capital injections promote changes in legislation, and promulgate regulations or instructions. Under the Crown Entities Act, board members are obliged to: ensure the entity acts consistently with its SOI and SPE operate in a financially responsible manner perform efficiently and effectively and in collaboration with other public entities 16 Statutory Crown Entities: A Guide for Departments

21 act with honesty and integrity, and with care, diligence and skill act in good faith and not at the expense of the entity s interests inform Ministers about acquisitions of subsidiaries and other interests, and do other things that are required under the Crown Entities Act or other legislation, e.g.: cooperate with ministerial reviews consult the Minister on the SOI and any SPE comply with any valid directions. Under the Crown Entities Act, the Ministers of Finance and State Services may jointly issue directions to support a whole of government approach to whole categories or types of entity or to smaller aggregations of entities in order to improve public services. The Minister of State Services may request information from three or more Crown entities (s. 133 (2A) (2C)) required for assessing the performance and capability of the State services overall. The Minister of Finance may also: request specific information under Part 4 regulate or agree to, borrowing, guarantees and indemnities and use of derivatives by Crown entities, and to variations from standard banking or investment arrangements, and require the payment of a capital charge, or payments of surpluses. Under the State Sector Act: Crown entities must comply with any applicable code of conduct issued by the State Services Commissioner ( the Commissioner ) Government Workforce Policy Statements relating to the negotiation of collective and individual employment agreements and to the development of a workforce strategy can be applied to Crown agents and ACEs Crown entities are directly subject to other aspects of the Commissioner s mandate, and the Prime Minister and responsible Minister can direct the Commissioner to carry out some functions in relation to Crown entities (e.g. undertake reviews).. Statutory Crown Entities: A Guide for Departments 17

22 Appendix 2: Central agencies statutory responsibilities The State Services Commissioner (the Commissioner ) and the Treasury have statutory responsibilities or powers regarding Crown entities and/or the Crown Entities Act 2004 (CEA), and Ministers should seek their support as appropriate. The State Services Commission (SSC) and the Treasury are jointly responsible for the administration of the CEA. The Treasury administers Part 4 (Crown entity reporting and financial obligations) while the SSC administers all other parts of the CEA. The State Sector Act, Public Finance Act and CEA provide the State Services Commission and the Treasury with powers to require the production of information from Crown entities to allow them to carry out their respective functions. These complement Ministers information rights under the Crown Entities Act. The CEA provides for the Ministers of Finance and State Services to jointly direct entire categories or types of statutory entities, or to smaller aggregations of entities, to comply with specified requirements to support a whole of government approach (see s. 107). Such directions may not be issued to single entities. If departments are considering advising Ministers whether an issue could be addressed through a CEA section 107 direction, they should first seek the advice of the SSC and the Treasury. Consultation must occur with affected entities and stakeholders before such a direction can be issued (s. 108). Consultation with the SSC and the Treasury is necessary on any machinery of government proposal that could result in the establishment of a new organisation that might be a Crown entity, including a proposal to establish a trust. The SSC and the Treasury have shared interests in reviewing the operations and performance of an entity or group of entities (especially if Ministers exercise their powers under s. 132 of the CEA to review the entity s operations and performance). Lead responsibilities of the State Service Commission The SSC jointly administers the CEA (with the Treasury) and assists the Minister of State Services. The recent amendments to the State Sector Act provided new powers to the Minister of State Services to assess the system capability and performance of Crown entities, and new provisions for government Workforce Policy Statements that can apply to Crown entities. The Commissioner s mandate under the State Sector Act includes responsibilities regarding: providing advice and guidance on, and setting minimum standards regarding, matters of integrity and conduct in Crown entities (does not apply to Crown Research Institutes) reviewing the State sector system in order to advise on possible improvements to agency, sector, and system-wide performance 18 Statutory Crown Entities: A Guide for Departments

23 reviewing governance and structures across all areas of government, in order to advise on: i ii iii the allocation and transfer of functions and powers the cohesive delivery of services the establishment, amalgamation, and disestablishment of agencies, and promoting and reinforcing standards of integrity and conduct in the State services. The Commissioner must also act on a wider range of matters affecting Crown entities if directed by the Prime Minister or a responsible Minister for an entity. The Commissioner has responsibilities under the Act to review and advise on the remuneration packages of Crown entity chief executives (see s. 117) and, if so directed by the Governor-General, to review and advise on collective employment agreements applying to entity employees (see s. 116). Lead responsibilities of the Treasury Advice from the Treasury should be sought when interpreting the Act on: budget and expenditure information and processes the application of rules set down under the Act relating to: the acquisition of securities; borrowing; the giving of guarantees; the granting of indemnities; and the use of derivative financial instruments, and the interpretation of, and compliance with, reporting requirements. Consultation with the Treasury is part of normal business practice on all issues that impact on expenditure or revenue, or that have financial, fiscal or economic implications. This includes all performance and reporting issues that may influence decisions on value-for-money. Statutory Crown Entities: A Guide for Departments 19

24 Appendix 3: Crown entities and accountability to Parliament Crown entities are accountable to the House of Representatives. Parliament can scrutinise Crown entities in three main ways Parliamentary Questions, Select Committee s Review of the Estimates, and Financial Reviews. The Office of the Auditor-General (OAG) is the statutory auditor of all public entities, including Crown entities. It scrutinises Crown entity accountability, reporting and performance information on behalf of Parliament. Parliamentary Questions (PQs) to Ministers Ministers must answer questions in the House about entities within their portfolio. In turn, the Minister can require Crown entities to supply that information. There are only very limited grounds (such as jeopardising the exercise of a quasi-judicial function) for an entity to refuse such a request. In some portfolios, the monitoring department coordinates with the entity on the information required by the Minister to answer the questions. In the case of some of the larger Crown entities, the entity liaises directly with the Minister s office on the preparation of answers. Select Committee Review of Estimates The House of Representatives scrutinises the government s spending plans though a review monies in individual Votes in the Estimates that are published on budget day. The Select Committee s examination is supported by the staff of the Office of the Auditor-General. The Committee may draw on information in a Crown entity s SPE and SOI (if these documents are available at the same time. Crown entities may only come under scrutiny in the review of estimates process if they receive funding via appropriation. Staff from the Crown entity do not generally attend the Select Committee when it reviews the estimates 10. It is ultimately up to the board chair to decide who from the entity will attend the hearing. 10 When Crown entity staff do attend Select Committee, the no surprises principle applies and the Minister must be keep informed in advance of the matter that might be discussed and the official attending. See SSC s Official and Select Committee Guidelines, paragraphs 22, 23, and Statutory Crown Entities: A Guide for Departments

25 Financial Review The Financial Review looks at the government s actual expenditure and performance by examining State sector organisations performance. This includes all Crown entities, whether funded by Vote or not. The Financial Review is undertaken by the relevant Select Committee. The key documents before the Committee are the Crown entity s SPE, SOI, and the Annual Report. The Committee generally also sends written questions to the entity for answering prior to the meeting. For more information see and New Zealand Standing Orders of the House of Representatives, Chapter IV Select Committees, and Chapter VII: Financial Procedures, Non Legislative Procedures, Questions to Ministers and Members. Statutory Crown Entities: A Guide for Departments 21

26 Appendix 4: Glossary of public sector terms Agency Synonym for organisation. A blanket term that may include departments, Crown entities, State-owned Enterprises, PFA Schedule 4 organisations, PFA Schedule 4A and 5 companies, Offices of Parliament and the Reserve Bank. Appropriations A Parliamentary authorisation for Ministers of the Crown or an Office of Parliament to incur expenses or capital expenditure. Autonomous Crown entity Autonomous Crown entities (ACEs) are statutory Crown entities that must have regard to Government policy directions as distinct from giving effect to Government policy directions or being generally independent of Government policy. Better Public Services Advisory Group The Better Public Services Advisory Group was established by the government in May 2011 to provide advice on State sector reform. It reported to the government in November 2011 and its report was released on March Code of conduct Under the State Sector Act, the State Services Commissioner has issued a code of conduct covering the minimum standards of integrity and conduct that are to apply to the Public Service and most Crown entities. Crown Means the Sovereign and includes all Ministers of the Crown and all departments (including any of their departmental agencies). It does not include any other type of organisation described in the definition of agency above. Crown agent Crown agents are statutory Crown entities that must give effect to Government policy directions as distinct from having regard to Government policy directions or being generally independent of Government policy. Crown agents are those Crown entities most closely subject to ministerial control. Crown entity Crown entities are stand-alone corporate bodies that are legally separate from the Crown. They are public bodies that operate at arm s-length from Ministers, but still an integral part of the State sector. Ministers have a key role in managing the Crown s interests in Crown entities, for example through their role in board appointments, setting direction and funding levels, and monitoring entity performance. Section 7 of the Crown Entities Act 2004 outlines the five categories of Crown entity: Tertiary education institutes polytechnics/institutes of technology, universities and wānanga established under part 14 of the Education Act 1989; Statutory entities bodies corporate established through legislation; Crown entity companies companies that are incorporated under the companies act and are wholly owned by the Crown, (e.g. Crown Research Institutes, TVNZ); Crown entity subsidiaries companies that are controlled by Crown entities; 22 Statutory Crown Entities: A Guide for Departments

27 School boards of trustees as constituted under Part 9 the Education Act 1989; and Tertiary education institutes polytechnics/institutes of technology, universities and wānanga established under part 14 of the Education Act Department The departments that comprise the Public Service are listed in the First Schedule to the State Sector Act. In addition to those departments, the Public Finance Act includes the New Zealand Defence Force, New Zealand Police, Office of the Clerk, Parliamentary Counsel Office, Parliamentary Service and the New Zealand Security Intelligence Service in the definition of department. The latter departments are also referred to as Non-State Sector Act departments or Non- Public Service departments. Departmental agency A new organisation form involving a specific operational delivery or regulatory function or functions placed within a host department. A Departmental Agency has a chief executive employed by the State Services Commissioner. The Departmental Agency s chief executive reports directly to the Minister responsible for the Departmental Agency, who may or may not be the same as the Minister responsible for the host department. Departmental appropriations Departmental appropriations are for outputs, other expenses, or capital expenditure incurred by a department. Estimates of appropriations A statement of the proposed expenses and capital expenditure to be incurred by the Crown or an Office of Parliament. The Government s request for appropriations, and supporting information, is presented to the House of Representatives at Budget time in formal documents known as the Estimates and Information Supporting the Estimates. Functional leadership Functional leadership may be defined as leadership, on a cross-agency or crosssystem basis, of an aspect of business activity (for example, Procurement, ICT and Property). It is aimed at, inter alia, securing economies or efficiencies, improving services and service delivery, and developing expertise and capability across departments. GAAP Generally Accepted Accounting Practice. Information Supporting the Estimates The Information Supporting the Estimates is organised by sector and provides a statement of responsibility and performance information for each appropriation. Independent Crown entity Independent Crown entities (ICEs) are statutory Crown entities that are generally independent of Government policy as distinct from giving effect or having regard to Government policy. Mixed Ownership Model companies Mixed Ownership Model (MOM) companies are listed in Schedule 5 of the Public Finance Act This model applies to companies majority controlled by the Crown, and minority controlled by persons other than the Crown. Statutory Crown Entities: A Guide for Departments 23

28 Multi-category appropriations A single appropriation made up of multiple categories (which can be different types of expenditure including output expenses, other expenses, and nondepartmental capital expenditure) that all contribute to the same overarching purpose. This is similar to the multi-class output appropriation (MCOA), but is more flexible as it is not limited to output expenses. Multi Class Output Appropriation (MCOA) The Minister of Finance can agree that more than one specified class of outputs be supplied under a single appropriation. Net assets rule The requirement in section 23 of the PFA for Parliamentary confirmation of the level of each department s net assets each year. Non-departmental appropriations Non-departmental appropriations relate to transactions on behalf of the Crown with parties outside the legal Crown. For example, purchasing outputs from, and making transfer payments to, outside parties, and investing capital in other entities or persons. Offices of Parliament The primary function of an Office of Parliament is to be a check on the Executive, as part of Parliament s constitutional role of ensuring accountability of the Executive. An Office of Parliament must discharge functions which the House itself might appropriately undertake. Currently there are three Offices of Parliament: Office of the Controller and Auditor-General, Parliamentary Commissioner for the Environment, and Office of the Ombudsmen. Outcomes The impacts on, or the consequences for, the community or society of the outputs or activities of the Government. Outputs Goods or services provided by departments and other entities. Outputs are a variety of types, including policy advice, administration of contracts and grants, and the provision of specific services. Permanent legislative authority Also known as a Permanent Legislative Appropriation, PLA, or permanent expenditure authority, this is an authority contained in statute that continues in effect until repealed by Parliament. An example of a PLA is in relation to departmental capital expenditure, where a PLA is used to authorise the purchase or development of departmental assets funded from a department s balance sheet. Public Finance Act Schedule 4 organisations PFA Schedule 4 has a list of miscellaneous organisations, including Fish and Game Councils and Reserve Boards, which are subject to certain provisions of the Crown Entities Act (specified in the Schedule). Public Finance Act Schedule 4A companies Schedule 4A of the Public Finance Act has a list of companies in which the Crown is the majority or sole shareholder, and which are not listed on a registered market. PFA schedule 4A companies are treated as Crown entities for the purposes of directions under the section 107 of the Crown Entities Act 2004, and various sections of that Act relating to financial powers also apply (as specified in the Schedule). 24 Statutory Crown Entities: A Guide for Departments