The Treasury, charged with overseeing the retail deposit guarantee scheme that will cost taxpayers up to $1.1 billion, looked on passively as finance companies used the guarantee to hoover up investor funds.
That is the conclusion of the Office of the Auditor-General into the Treasury's handling of the scheme, which began in 2008.
Deputy Controller and Auditor-General Phillippa Smith told Parliament's finance and expenditure committee yesterday that as a policy-providing department, the Treasury was not immediately equipped to take an active role in the first five months of the scheme, which threw a lifeline to firms that subsequently failed, including South Canterbury Finance.
"We have not said [the Treasury] should have intervened, we have said we could not find evidence that they asked the questions of themselves," Smith said. "We could find no evidence that they had asked the question should we be behaving differently? Are there ways we could intervene?"
When the report was released in October, Treasury Secretary Gabriel Makhlouf said the department could not find a case where intervention was likely to achieve a better outcome.
"Treasury is largely a policy ministry and this was a big operational task for which they weren't equipped and had to become equipped," Smith said.
The Government ended up paying out about $2 billion to guaranteed debenture holders and expects to claw back about $900 million.