Part 7: Payments above a principal's normal salary

Schools: Results of the 2012 audits.

In December 2010, we reported on the results of our review of additional payments to secondary school principals, which was carried out as part of our 2009 school audits. The auditors reviewed about 400 schools. They found that for about 80 schools, either additional payments had been paid without the Ministry's approval or it was not clear whether some payments needed the Ministry's approval – for example, because the guidance was not precise enough.

In most instances, the additional payments were not large. However, the underlying principles are important. First, payments are lawful only if the Ministry approves them. Secondly, there is always heightened sensitivity about payments that have the potential to create private benefits, even if they are genuine business expenses. Thirdly, in some circumstances, reimbursing a private expense can be unlawful and can lead to prosecution.

After we published our December 2010 report, the Ministry gave comprehensive guidance to schools to clarify when its approval is required. The Ministry also published a circular on the need for boards to consider recovering unlawful payments. This should ensure that boards are aware of the general expectation that they consider recovering the money when they make unlawful payments.

More recently, the Ministry has issued further guidance (Circular 2013/27 – Principal Concurrence). Changes have been made to the process to increase flexibility and create a more streamlined approach. As a result, boards may approve "sensitive payments" within clear boundaries. However, these must be mainly related to work and give only a small, if any, private benefit. For example, the Ministry will not agree to a vehicle being provided for non-work use, allowances for transport to and from work, insurance, subsidised housing rental, non-work-related Air New Zealand Koru Club membership, or personal grooming expenses.

Although the Ministry has provided further guidance to schools about additional payments to secondary school principals, that guidance does not yet address all of the matters that we raised in our December 2010 report.

We understand that the Ministry is considering the matters that we raised about payments by proprietors of state-integrated schools. Those matters included the possibility that some of the payments were unlawful, equality of pay for all state schools, and properly managing conflicts of interest.

The Ministry has also told us that it would consider requiring boards of state-integrated schools to disclose financial transactions with proprietors in their financial statements. This would help maintain the transparency of any payments that principals receive directly from proprietors.

It is more than three years since we told the Ministry the findings of our review of the additional payments to secondary school principals. We are concerned that the Ministry has not yet managed to address all the matters we raised in our December 2010 report.

The Ministry has said that it will hold discussions in 2014 with the Association of Proprietors of Integrated Schools on the desirability of including a disclosure note in boards' annual financial statements to resolve this matter. A disclosure note could cover all payments from proprietors to boards, and would take effect from the year ending 31 December 2014.

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