13 September 2004
Public Finance (State Sector Management) Bill (PFSSM)
The Bill has now been reported on by the Select Committee. The Bill (nearly 500 pages) is no longer available online.
Significant changes proposed by Government to the Education Act 1989, below identifies some key issues that will affect boards and their operation. Briefing papers will be sent to boards outlining the key changes. It is expected that the new legislation will be passed by October 2004.
Background
In late December/early January the Public Finance (State Sector Management) Bill (PFSSM) was introduced into Parliament, and a copy can be purchased from Bennetts Government Bookshops.
It is intended to provide consistency in the organisation, performance and reporting of the Crown Entities sector, and to clarify the relationships between Crown entities, board and Ministers. It is a major piece of legislation and will be split into 3 separate Bills in the next stage.
While school boards of trustees are the largest group of Crown Entities (and therefore given a special category), NZSTA consider the provisions of the Bill that apply to Boards of Trustees will not simplify or clarify current requirements under the Education Act 1989, but will give the Government further powers to intervene in board matters. A number of amendments will be made to the Education Act 1989 reflecting changes being introduced in the Bill and other additional matters Government are also seeking to change in regard to school boards.
NZSTA prepared a submission to the select committee outlining our issues and opposing inclusion of school boards of trustees in such a specific way in this legislation.
You may also wish to make your own views known to the select committee and your local MP. The contact details for the select committee are:
Finance and Expenditure Committee,
Bowen House, ParliamentBuildings,
WELLINGTON
Email: SC-FE@parliament.govt.nz
Major Issues
The major issues NZSTA have identified with the introduction of this Bill are:
- Potential for increased compliance costs;
- More complex reporting requirements;
- Conflicting provisions both within the Bill, and as it applies to other existing legislation;
- Lack of recognition of the unique operating environment for school boards of trustees;
- Confusion on whether some provisions apply to boards or not, and if so, in what context
- Additional powers for the Minister to add further responsibilities for boards
- A range of unjustified changes to the Education Act 1989.
Key Changes included in the New Act(s)
Treasury instructions
Treasury may issue instructions under regulations provided by order in council. It is possible boards may be subject to Treasury instructions in the future on accounting policy, adding additional cost and complexity to annual reporting requirements.
Extension of State Services Commissioners Powers
The State Services Commissioner will have the power to investigate and request information from boards. The Commissioner will also be able to provide advice and guidance to employees on matters of conduct and integrity. There is potential for the Commissioner to delegate these powers to the Secretary of Education.
The Commissioner can also issue a code of conduct that will apply to all Crown Entities, although the Secretary for Education already has the power to issue this for the education sector. There is potential to link the current proposed teachers’ code of ethics to any new code of conduct. This could end up confusing the nature and purpose of the 2 codes.
Ability for Minister to give directions
The Minister will be able to direct boards to perform certain functions that are within the Minister’s statutory powers. This means the Minister may be able to direct boards to act on a decision that is political motivated, rather than in the best interests of education. The Minister will be required to consult with the Crown Entities before giving the direction, but we are not sure how thorough “consultation” will be, and how this requirement will be met.
Whole of government directions
Boards will be expected to comply with requirements issued under whole of government directions. This could also apply to areas outside education, where education is impacted on, or areas which involve an expensive compliance exercise for boards, but have no real benefit for education, such as schools being required to maintain a website and inline facilities that meet the governments e-government goals. This idea has been previously opposed by NZSTA, when it was introduced as part of the proposed amendments to the Education Standards Act. Although we recognise that education is an important and integral part of many sectors, the additional pressures on boards and principals could be great, given that there are no real restrictions or limits on what may be applied under this section.
Review of Crown entity’s operations and performance
The Minister of Education may review the operations and performance of a school at any time. This is additional to the current powers in the Education Act, where the Secretary of Education can request information for specific purposes (interventions), or the Education Review Office can gather information for the purposes of a review. This provision does not contain the requirement of specificity, so the Minister could require a wide range of information that is time consuming for staff members to compile, and perhaps difficult to comply with in some circumstances.
Power to request information
The board must supply to the Minister any information relating to the operations and performance that the Minister requests. This means that the Minister/Ministry has a lot wider powers to request information about anything relating to the school, and the board must supply it. This has both cost and compliance implications for boards.
Planning and reporting requirements
Boards are exempt from many of the requirements of this section, as the sections have been mirrored in changes to the Education Act 1989. However, this section does include further restrictions for boards with regards to financial arrangements, and increases certain powers of intervention.
Bank accounts of Crown entities
This will not require a change for many boards. However for boards with accounts with certain banks (such as the Taranaki Savings Bank (TSB)), they may have to change banks if it does not satisfy the credit rating test regulations. This would be a change from current provisions in schedule 3 of the Education Act, under which boards can choose any bank.
Regulations under this part
The Governor General is given additional powers to make regulations with regards to planning, reporting, borrowing and other financial transactions and arrangements. The wide range of reporting and financial arrangements that could be impacted on from this section is almost limitless, and boards could face considerable risk and cost if they are included in any blanket Crown entities regulations.
Minister of Finance instructions
The Minister of Finance may issue instructions to all or any Crown entities on information to be published under this act, and can prescribe non-financial reporting standards that Crown entities must apply. For boards, this could be in addition to current Ministry of Education requirements, and possible Treasury instructions. The instructions could potentially be in conflict, creating multiple reporting requirements for boards. Additional expertise may have to be sought to ensure that boards are compliant with all the reporting requirements issued by the various parties.
Gifts
Restrictions are lifted on boards being able to accept or disclaim gifts, so that boards will be able to hold shares, property or other gifted items. There is a provision for the subsequent sale of such gifts within a “reasonable time”. The Bill does not make clear what a “reasonable time in the circumstances” might be for holding gifts, or what might happen if it is deemed that the gifts were not held for this “reasonable time”.
Proposed changes to the Education Act 1989
The Education Act contains several important changes as a consequence of the introduction of the Public Finance (State Sector Management) Bill. The proposed changes are included in schedule 8 of the bill. In brief, these are:
- changes to school charter intent, and school charter amendments;
- the lifting of restrictions on Board of Trustees committee members to be trustees, therefore introducing the ability
to delegate to a committee of non-trustees;
- increase in annual reporting requirements including requirements to report:
i] the number and salary range of all employees above $100000,
ii] the number and amount of all remuneration, benefits and compensation paid to trustees, committee members
and any subsidiaries, (listed and attributed to each member),
iii] the compensation paid to any board member, committee member or employee upon “loss of office”. (This
includes any employee dismissed under disciplinary or competency processes).
iv] details of any indemnity provided by the board,
v] detailing any insurance cover effected by the board in respect of liability or costs.
- Annual financial statements must comply with new provisions of the Public Finance Act
- the auditor’s report must be in accordance with section 196 of the Public Finance Act (although boards are
exempt from section 190-197 so there is inconsistency)
- Boards are exempt from producing a statement of intent (as this requirement is met by - producing a school
charter) and the annual reporting requirements contained in the PFSSM as these are largely reproduced in the
Education Act 1989.
- Changes to certain persons ineligible to be trustees. This now includes sections of the - Companies Act 1993 and
Protection in Personal and Property Rights Act 1988.
- Requirement to disclose to the Minister all interests a person is likely to have in relation to the board.
- Removing the requirement for a board to hold physical meetings. Meetings can be held by a quorum of members
by audio, audio visual or electronic communication.
What are the potential impacts for boards as a result of these changes?
1 Increased compliance costs
The changes to the annual reporting requirements will subject boards to additional costs in ensuring that they have complied with all of the changes. Provisions contained in the PFSSM Bill also give the Minister of Finance the power to impose further reporting requirements. The Governor General will also have limited powers to make boards subject to certain provisions, particularly whole of government directions. The State Services Commissioner, Secretary of the Treasury and Minister of Education will also have powers to require information from boards, or specify further regulations. Although these changes are intended to increase transparency and accountability, they will have no noticeable impact on increasing educational outcomes for students, or furthering educational goals.
2 School Charter
The school charter will now provide a “base against which the Board’s actual performance can later be assessed”. This means that boards will be assessed on how well they plan, structure, write and report on the charter. It is unknown what impact this provision will also have for ERO in terms of reporting on school and board performance. The charter also will need to be updated annually or at any time when there is incorrect information found in the charter or “misleading in a material particular”. We do not know what the interpretation of “material particular” is at this point.
3 Increased scrutiny through more detailed reporting
Some employees will feel vulnerable where their remuneration levels are reported in the annual report, and subject to scrutiny in the public domain. This will potentially make it more difficult for boards to recruit members willing to govern in this environment, and also decrease the number of employees willing to stand as staff representatives (as their salary will be revealed through the reporting requirements of trustee remuneration).
Also, boards may be pressured by the media to explain “large” compensation payouts that were the result of industrial relations settlements. This would breach current privacy provisions for individuals, and make low level resolution of employment problems extremely difficult.
4 Financial obligations
The Bill makes changes to the provisions for schools to borrow money, hold bank accounts at certain institutions, provide guarantees or indemnities, investment in securities and restrictions on the use of derivatives. For example, changes to provisions for schools to borrow money, mean that boards will no longer be able to borrow up to an amount set and gazetted by the Minister of Education. Any board that wishes to borrow money will be required to get approval from both the Minister of Education and the Minister of Finance.
5 Multiple legislative requirements
Boards will have to become familiar with the applicable sections of the Public Finance (State Sector Management) Act 2003, to make sure that they are compliant with the relevant Crown entities legislation. Any further changes to the Act that cover “all Crown entities” will impact on schools. This legislation is complex, and boards may suffer unintended consequences from provisions made in the Act that were intended for clarifying regulations for Crown companies.
6 Changes to board of trustees committee membership regulations
Boards will be able to appoint members of committees who are not trustees. A committee could potentially be made up from with all non-trustee members. We believe that this does offer greater flexibility for boards to draw in additional expertise and delegate functions, but carries significant risks, as the board remains accountable for any actions taken by a committee. Having non-trustees involved in decision making regarding student suspensions and serious employment issues would place boards at legal risk. There is also no current requirement for these committee members to meet the same requirements for eligibility as members of the board.
7 Reporting all areas of interest to the Minister
In addition to current declaration of conflict of interest requirements, trustees will be required to “disclose to the Minister the nature and extent (including monetary value, if quantifiable) of all interests that the person has at that time, or is likely to have, in matters relation to the Board.” This potentially could mean that all trustees would have to declare their interest in education, and improving educational outcomes for students. It also gives the Minister a direct role in influencing the eligibility of trustees.
8 Changes to trustee eligibility criteria
The proposed changes require board members to be familiar with both the Companies Act and Protection of Personal and Property Rights Act. Prospective board members must “certify in writing” that they are not disqualified under either Act, or any of the other criteria in these sections. This would mean changes to the nomination process for new board members, and may discourage some candidates from standing, even though they would be eligible.
9 Meeting requirements
Boards will be able to meet using electronic, audio and visual communication, as an alternative to holding a physical meeting. A quorum of members can meet using a range of technology that will allow them to simultaneously communicate with each other throughout the meeting. There is no requirement for the board to have equal access for all members, which could lead to some boards excluding members through lack of access to the preferred technology.