Crown Entities Act
The financial powers provisions of the Crown Entities Act 2004 sets out the requirements on school boards of trustees (Boards) bank accounts, and restrictions on:
- Acquisition of securities (investments)
- Guarantees and indemnities
For an explanation of what these terms mean go to Definitions.
In our memo 2005/1 and /2 we outline many recent changes to legislation which will impact on boards. Included in that advice was an outline of the changes resulting from the Public Finance (State Sector Management) Bill (see memo 2004/37B for background).
Treasury and the Ministry of Education are responsible for implementing the new Act's financial powers provisions (sections 158 to 164 of the Act) Boards and any restrictions that apply (restrictions are located in the Education Act 1989 as new sections 67, 67A, 67B and 73). We have been contacted by Treasury to work with them to assist boards on the implementation.
While the Crown Entities Act came into force on 25 January 2005, its financial powers provisions will apply later - namely:
- bank accounts, six months after 25 January 2005 (i.e. 25 July 2005 ); and
- other financial powers, from 1 April 2005.
This timing is intended to allow adequate time for implementation and enable Boards to identify what authorisations that they may require for business activities that would otherwise be precluded by the financial powers provisions.
If Boards are satisfied that current authorities are sufficient for the short term, then they may rely on the transitional arrangements outlined below.
Section 195 of the Crown Entities Act provides a six-month period of grace from 20 January 2005 for existing bank accounts after section 158 comes into force. During this period Boards must continue to comply with section 24 of the Public Finance Act.
Other Financial Powers:
Section 196 of the Crown Entities Act provides that existing law will apply until 1 April 2005 , and section 197 contains a transitional authority for existing securities, borrowing, guarantees, indemnities and derivatives. This means that borrowing, acquisition of securities, etc lawfully transacted by Boards before 1 April 2005 will not be affected by the new default provisions in the Education Act, but may be amended, and options may be taken up, on or after that date only if permitted by the Minister of Finance.
New financial transactions undertaken on or after 1 April 2005 must comply with the new sections 67, 67A, 67B and 73 of the Education Act, and any new bank accounts opened on or after 25 July 2005 must comply with section 158 of the Crown Entities Act.
If Current Authorities Not Sufficient:
The Act gives a framework for financial transactions and arrangements. Only those detailed within the Act, or provided for in regulations are allowed, unless authorisation is sought and given by - in the case of individual Boards or groups of Boards - joint approvals by the Ministers of Education and Finance. NZSTA has been consulted on the drafting instructions for the regulations. A section of the Regulations (5A) maintains the status quo for Board borrowing and the remainder are generic for Boards except where specific variations are approved by those Ministers.
More detailed information can be obtained by contact the firstname.lastname@example.org and entering "Financial Information" in the subject line or click on the documents below which elaborate the Bill's provisions, discuss operational and compliance implications, include Treasury drafting instructions for associated regulations, and indicate procedures and information needed to support requests for authorisations to depart from the restrictions:
- Annex B: Borrowing and acquisition of securities (new sections 67 and 73 of the Education Act) (pdf)(docx).
- Annex C: Giving of guarantees and indemnities, and use of derivatives (new sections 67A and 67B of the Education Act) (pdf)(docx).
Section 158 of the Crown Entities Act governs accounts held at registered banks, registered building societies, or banks outside New Zealand. The new Education Act provisions for other financial powers contain restrictions from which departures are possible only in terms of regulations, joint Ministerial approvals, or the Education Act itself.In addition, for ease of reference:
- Annex D: replicates BoT financial powers provisions in the Education and Crown Entities Acts - together with related provisions, definitions and transitional arrangements; (pdf)(docx)
- Annex E: replicates existing BoT borrowing and investment provisions in the Education Act, which will be repealed when the new provisions apply; (pdf)(docx)
- Annex F: provides a table that relates sections in the Crown Entities and Education Acts to corresponding clauses in the earlier Public Finance (State Sector Management) Bill. (pdf)(docx)
The legislative timeline is very tight, if Boards have any comments they wish to make on the draft regulations, then please provide them by no later than Thursday 10 February 2005, they can either be channel through NZSTA or directly (with copy to NZSTA) to Roger Beckett and Tyson Schmidt at Treasury (phone 471-5084 and 471-5926 respectively) at Treasury.
Requests for Joint Ministerial Approvals:
A number of Boards (individually or in groups) may require joint Ministerial authority and this will entail making a formal request for financial powers which boards consider are legitimate requirements for carrying out their functions. These requests (or any general inquiries) should be sent to Raewyn Glover at the Ministry of Education (phone (04) 463-8797). The Ministry will coordinate with Treasury in seeking approvals from the Ministers of Education and Finance.
Information to be Included in Requests:
Requests by individual Boards or groups of boards for financial powers authorities must be supported by reasons based in business need and provide an assurance about how any additional risk will be managed. The level of detail required depends on whether a Board is seeking to:
- renew an existing authorisation , for which supporting analysis justifying business need and demonstrating capability to manage risk will be expected;
- extend the scope or limits of an existing authorisation , for which a similar analysis will be required together with reasons for the extension; and
- obtain a new authorisation for transactions not previously approved , for which a detailed explanation of business need and the risk management mechanisms to be put in place will be needed.
to assist Boards in preparing their requests. In each case, the Ministry of Education and Treasury will provide an assessment of the request before advising Ministers. Please note that in our submissions on the legislation NZSTA raised concern that boards using the TSB Bank Limited (TSB) may be negatively effected by the changes. As a result the Minister of Finance has indicated that this issue will be considered within the six-month grace period. Treasury will be working on this issue with the TSB and therefore Boards do not need to include this as part of their application.