Treasury has been accused of being "asleep at the wheel" after the Auditor General's office found it took five months to set up proper monitoring processes for the Retail Deposit Guarantee Scheme.

Last year, an Auditor General's review found the scheme had been successful in maintaining confidence in the financial system, although noted that the costs had been considerable.

Speaking about the review this morning, Deputy Auditor-General Philippa Smith told a Parliamentary finance and expenditure committee the scheme was set up in haste and Treasury had "continued too long in that reactive and crisis management mode".

"They didn't move to a more strategic approach to think in broader terms, what they were doing, what were the issues they had to manage. They did eventually but perhaps not as soon as they could have," Ms Smith said.


"As a policy ministry, where was the policy work? Where were the policy expertise to say 'actually we've got something unprecedented here, is there a better way of going about it?'."

Ms Smith said she could not say if the outcomes would have been better or worse if there had been intervention from the Treasury, but questioned the fact the organisation did not actually consider it.

"There were plenty of other deposit guarantee schemes at the same time for exactly the same reasons in other countries, and those schemes did enable more intervention and we couldn't see that Treasury looked at those possibilities."

In the months following the scheme's introduction, the Crown's liability grew significantly as finance companies took advantage of the government guarantee and increased their deposit bases.

Green Party co-leader Russel Norman summed up the situation as "Treasury asleep at the wheel to the cost of several hundred million taxpayer dollars".

"There's this intervening period where the liabilities on the scheme grew dramatically but the Treasury wasn't asking the questions it should have been asking," Dr Norman said.

Labour MP Clayton Cosgrove questioned the apparent lack of communication between the Treasury, the Reserve Bank and the Minister of Finance, and asked whether it was a case of "see no evil, hear no evil".

"The Treasury won't ask the Reserve Bank for information it's entitled to, the Treasury allegedly doesn't report to the minister, the minister doesn't want to know ... What the hell is going on?" he said.


Opposition MPs have formally requested that Treasury officials and Finance Minister Bill English be called to front up to the committee about the issue.

Nine finance companies covered by the scheme have failed, and the Government has so far paid out about $2 billion - the bulk, about $1.8b, going to South Canterbury investors. The Government currently expects to recover about $900 million.

The committee was told there had been improvements in the department's operational procedures, and its work in the $500m bailout package for AMI showed that.