When Power Goes Wrong · Who Pays? · Part 18

Where does the money legally come from?

Public money cannot simply be paid because an agency wishes to settle. The Public Finance Act requires expenditure to be supported by an appropriation or other statutory authority, and the settlement must fit the scope and amount of that authority.

The Public Finance Act 1989 is the fiscal control behind the settlement process.

Section 4 provides that expenses and capital expenditure must not be incurred unless authorised by an appropriation or other statutory authority. Section 5 likewise restricts spending of public money to statutory authority.

Approval and appropriation are separate.A chief executive, Minister or Cabinet may approve a settlement at the correct decision threshold, but the department must still have lawful spending authority for the expense.

Political/administrative approvalWho is authorised to approve the proposed payment?

Appropriation authorityWhat Vote/appropriation or statutory authority legally carries the expense?

ScopeDoes the payment fit the appropriation's permitted purpose?

Amount/periodIs sufficient authority available in the relevant financial year?

Current DPMC guidance says expenses for compensation or damages settlements would ordinarily be incurred under a departmental output expense or departmental other expense appropriation.

The money is public money before it is settlement money. The fiscal authority must therefore be auditable independently of the legal merits of the claim.

Primary fiscal statutePublic Finance Act 1989, ss 4–11.

Cabinet guidanceCO (18) 2.

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