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​​Financial considerations for lead agencies

There are some specific financial decisions that lead agencies need to consider.

Leasing determination - operating vs finance lease

Lead agencies need to consider whether the funding and cost models adopted constitute either a finance lease or an operating lease.

  • A finance lease is a lease that transfers all the risks and rewards incidental to ownership of an asset. The title may or may not eventually be transferred.
  • In an operating lease, the risks and rewards incidental to ownership are not transferred.

When considering this, you should take into account that:

  • the lead agency will be the head lessee with 100% ownership of the fit out
  • the MoU and co-location agreement (which is not deemed to be a legal contract when it’s between crown parties) will act as the leasing arrangement mechanism between the lead agency and participating agencies
  • there will be a return of capital at the end of the lease.

Lead agencies are advised to consult the applicable accounting standard ‘PBE IPSAS 13 – Leases’ and test with their auditors whether a finance lease arrangement applies. Departments that enter a finance lease arrangement need Minister of Finance approval.

Standard PBE IPSAS 13 - Leases

Funding a co-location

Participating agencies that are Crown Entities

The participating agencies in a co-location can be a mixture of public service departments and Crown Entities. In most cases lead agencies are likely to be public service departments. Crown Entities include:

  • Crown Agents
  • Autonomous Crown Entities
  • Independent Crown Entities
  • Crown Entity Companies, and
  • Crown Entity Subsidiaries.

Crown Entities don’t require an appropriation to spend, so they’re not bound by the same approval and reporting requirements as public service departments.

Public service departments should recognise that this may impact any upfront funding agreements or capital injection requirements from participating agencies in the co-location. It may also impact on the timing required to make investment decisions.

Crown Entities are directed by GPG and aren’t subject to the same controls as public service departments.

The Crown Entities Act 2004 provides the governance framework for Crown Entities. Public service departments need to be aware of key points of difference for these organisations.

  • All decisions, including funding and CAPEX investment funding approvals relating to the operation of Crown Entities, are made by their Board in accordance with the Crown Entities Act.
  • Funding is through a monitoring agency. Crown Entities’ requests for additional funding are processed by their monitoring public service department. These requests may form part of the overall bids to Treasury by these departments under their respective vote.
  • Some crown agencies are funded through sales of services (revenue) to the general public.
  • Under section 107 Para 1(b) of the Crown Entities Act 2004, the Minister of State Services and the Minister of Finance may jointly direct Crown Entities to support a 'whole of government' approach.

Crown Entities Act 2004


The management of a public service department’s assets, liabilities, revenue and expenses is governed by principles and rules in the Public Finance act 1989 (PFA). According to the PFA, Sec 4 (1):

“The Crown or an Office of Parliament must not incur expenses or capital expenditure, except as expressly authorised by an appropriation, or other authority, by or under an Act”.

Departments are therefore funded through appropriation. The appropriation gives the Minister authority from Parliament to spend public money, or incur expenses or liabilities on behalf of the Crown.

Under the PFA, lead agencies that are departments will require authorisation to incur expenses and receive capital injections for the purposes of operating cost recovery, and receiving capital transfers from participating agencies.

In a co-location, facilities and building management services and cost recovery through leasing do not fit within the scope of existing departmental expenditure appropriations. Lead agencies need to establish a shared service appropriation - or similar - to ensure authority for providing these services. Similar appropriations are held by Treasury (Central Agency Shared Services) and by IRD (services to other agencies). Treasury supports a revenue dependent appropriation (RDA). We advise lead agencies to work with their finance team and Treasury at the beginning of a project to establish the necessary authority.

Public Finance Act 1989