Part 4: Travel expenses

Report to the Council: Additional assurance work on travel expenses, redundancy and severance payments.

4.1 What we did

The purpose of our additional assurance work on travel expenses was to assess the appropriateness of the expenditure. We identified 20 trips to Hong Kong and China in 2009, 2010, 2013, and 2017 that included the Chief Executive or an executive member of staff (past or present)3. We tested the expenses claimed for these trips by the Chief Executive and executive staff members against:

4.2 Basis for our expectations

The Auditor-General’s good practice guide, Controlling sensitive expenditure: Guidelines for public entities (the A-G guidance on sensitive expenditure), states that “the most fundamental fact applicable to all expenditure by a public entity is that the entity is spending public money”. It goes on to say that all public sector spending must meet standards of probity and financial prudence that will enable it to withstand Parliamentary and public scrutiny. Specifically, it is important that expenditure decisions:

  • have a justifiable business purpose;
  • preserve impartiality;
  • are made with integrity;
  • are moderate and conservative, having regard to the circumstances;
  • are made transparently; and
  • are appropriate in all respects.

These principles should be applied and evidenced in the approval of sensitive expenditure, regardless of where in the world you might be doing business.

4.3 Travel expenses - detailed findings

4.3.1 Lack of prior approval of travel for business purposes

The A-G guidance on sensitive expenditure states that approval of sensitive expenditure should be given only when the person approving the expenditure is satisfied there is a justified business purpose and, wherever practical, be given before expenditure is incurred. Contrary to these expectations, we found:

  • While there was evidence Wintec was aware that executives were travelling and that the travel was within the overall programme of work with overseas partners, there was generally no evidence of a specific rationale or approval for individual trips, the expected costs of those trips or approval of those costs. Where an articulated rationale or approval did exist, they rarely provided details of the expected costs for the trip. There were some improvements by 2017, but practice was inconsistent and still lacked detailed expected costs.
  • Despite Wintec’s International & Domestic Travel Policy requiring all employees to complete the “Application for Travel Associated Costs and Leave” formin advance of any ticket purchase, we saw no evidence of this form being used. The form provides a template for prior approval for travel.
  • There were some instances where the then Council Chair approved a programme of travel (for example, an overview of intended travel for 2017). However, this approval did not cover the details of individual trips, including confirmed dates and who would be travelling, or the expected cost and anticipated benefits of those trips.

Overall, this meant we found limited evidence of the approval or business justification for the trips. Expenses were generally only approved after they were incurred and on return to New Zealand.

Having detailed rationale and approval for individual trips would ensure that approvals for travel are made in line with the principles outlined above, and that the business justification for travel is properly tested before expenditure is incurred.

4.3.2 Inadequate supporting documentation for expenses incurred

Incurred expenses requiring approval should be accompanied by adequate supporting documentation. This could include tax invoices, receipts, or other validating documentation. The documentation should include the date, amount, description, and purpose of minor expenditure when receipts are unavailable or unclear. Without this sort of documentation it is difficult for the approver to properly assess whether the expenses incurred were appropriate.

Because of the nature of the scope of this review we have sought to corroborate all expenses, irrespective of size, to ensure the expenses were accurately recorded and to enable their assessment of appropriateness.

We found that the information provided to support invoices was frequently insufficient to enable this assessment. Some particular examples that do not meet our good practice expectations include:

  • There are instances of costs being charged back to hotel rooms without detailed receipts or invoices. There is no way to know what those charges were for, or whether they were an appropriate use of public money.
  • There was a practice for all room costs for the travelling party to be transferred to one room and paid from there. The invoice for this room would include the consolidated charges, but sometimes supporting invoices or documentation relating to the transferred costs would not be retained. In these cases, there is no documentation to explain what the costs were for and, in some instances, who incurred them.
  • Many of the receipts were in Mandarin, without translations. Where necessary, we had receipts translated so we could test whether there was appropriate supporting documentation. In some instances, despite the translation, we could not confirm what the expenditure was for because the receipts lacked adequate detail (for example, a receipt would show the total amount spent but not what it was spent on).
  • As already mentioned, in the early years Wintec’s China Agent would pay for some of the costs incurred in China and then invoice Wintec for reimbursement of those expenses. As this was for the reimbursement of costs incurred, the China Agent has included a summary breakdown of costs and copies of receipts (in Mandarin) to evidence the expenditure. However, through to 2013 we found instances where no receipts or supporting documentation were attached to the invoices. It appears these invoices have been approved for payment based on inadequate supporting documentation.
  • Where supporting documentation was attached, we tried to reconcile the receipts and other supporting documentation provided by the China Agent to the invoice that was approved for payment. We found instances where the documentation was incomplete and did not support the amount in the summary and invoice.

We have been unable to confirm the appropriateness of the expenditure in the above instances. It is also unclear how the approver could have properly assessed this expenditure.

Put simply, Wintec has been unable to show what these expenses were for and, therefore, what public money has been spent on. As a public entity, this is unacceptable.

4.3.3 Inadequate practices for approval of expenses

We expect expenditure to be approved in line with appropriate financial delegations set out in Wintec’s Financial Delegations Principles and Procedures. This includes the expectation that approval is:

  • made only when budgetary provision and delegated financial authority exist; and
  • not made where the expenditure relates to that individual. The “one-up” principle, where expenses are approved by a more senior person, must be applied.

We found several practices that do not accord with good practice:

  • From May 2009, we understand that the approval of p-card expenditure was undertaken through the flexi-purchase system. For executives, this required two levels of approval. An initial on-line approval by the Chief Financial Officer and a second approval on a one up basis documented in hard copy. We found instances across the years tested where there was no hard copy evidence of the “one-up” approval.
  • A practice whereby a non-executive staff member would pay for all of the hotel and restaurant costs incurred by the team. This practice did not comply with the expectations of good practice or Wintec’s Financial Delegations Principles and Procedures. Specifically this includes:
    • the “one-up” approval process was not always observed. For example, where a non-executive staff member paid for expenses, including those of the Chief Executive, the expenses were approved by that staff member’s line manager. The “one-up” principle required the Chief Executive’s expenses to be approved by the Council Chair; and
    • there were instances of executive staff members approving their own expenses. This happened where a more junior staff member had paid for the team’s expenses on their p-card which included expenses relating to an executive. This same executive subsequently approved those expenses as the one-up approval.
  • As already mentioned, in the early years Wintec’s China Agent would pay for some expenses, including expenses of the Chief Executive or other executive staff, and then invoice Wintec for reimbursement of those costs. These invoices were approved by the relevant cost centre budget holder (who was often part of the travelling party). This is not in line with the required “one-up” approval.

This evidence suggests that the Council Chair may not have had full oversight of sensitive expenditure being incurred by the Chief Executive.

4.3.4 Questions over whether expenses were moderate and conservative

Our expectations reflect those set out in the A-G guidance on sensitive expenditure and Wintec’s policies on sensitive expenditure. These require that sensitive expenditure should not be extravagant or considered immoderate for the public sector. Each public sector entity should set out in their policies how “appropriate” is to be applied.

Wintec’s policies for sensitive expenditure have been strengthened over time. However, they remain flexible and allow for exceptions to be agreed in most instances. We noted the following issues that would benefit from clarification in the policy and guidance:

  • We saw a range of nightly room rates. There are instances of accommodation being booked in five-star hotels. This is inconsistent with Wintec’s policy and there is no explanation to justify the deviations from policy. There were also instances where the room rate per night differed for members of the team. It was common to observe that the most senior staff member on the trip would stay in a more expensive room.

    We accept that sometimes there may be limited options for accommodation depending on location or circumstances or particular reasons requiring certain accommodation. However, we expect any deviation from policy to be explained and pre-approved. Wintec would benefit from establishing standards for acceptable accommodation in light of the Auditor-General’s guidance on sensitive expenditure.

  • Minibar expenses were incurred in 2009 and 2010. Since then a prohibition has been in place on minibar charges and we saw this being observed in 2013 and 2017. In contrast, Wintec appears to have a very flexible approach to alcohol purchased in restaurants and bars. In some instances, expenses from more than one bar or restaurant were incurred on the same night (for example, starting at Hari’s Bar, then Oyster Bar, and then back at Hari’s Bar). This pattern suggests the charges were for more than reasonable dinner costs.

    Wintec should consider providing more guidance to staff on what is appropriate for drinks or alcohol and meals, including limits on what will be paid for by Wintec.

4.3.5 Poor control over use of cash withdrawals

Wintec has told us it had a system in 2009 and 2010 for managing cash advances. However, Wintec has acknowledged that it could not identify those advances and make them available for testing.Our audit has therefore been unable to test cash advances during 2009 and 2010 and as a result, we are unable to confirm how cash was used during overseas trips and what the cash was spent on.

Despite a cash advance system being in place in later years, we continued to find cash withdrawals that were unreconciled in 2013 and 2017.

To have cash withdrawals that remain unreconciled is totally unacceptable.

Wintec’s policies discourage the use of p-cards as a means to withdraw cash unless it is for an emergency and the policy allows for it. The policy states that p-cards should be used as the preferred method of payment for items that previously would have been covered through expenses or petty cash advances. Our testing identified two p-card transactions in the period 2009 and 2010 which were noted as cash withdrawals. Their explanations raise further questions about the circumstances of the withdrawals and how the money was spent:

  • A cash withdrawal of Chinese Yuan (NZ$270.48) by the Chief Executive on the business credit card that was subsequently exchanged with another non-executive staff member for New Zealand dollars. There is no evidence of the reconciliation of the remaining Chinese Yuan or the New Zealand dollars or evidence any remaining Chinese Yuan or New Zealand dollars were repaid to Wintec.
  • A p-card transaction recorded on the Chief Executive’s monthly statement as a balance transfer (approximately NZ$421.47). The explanation provided to support the p-card statement refers to this as a cash advance. There is no evidence that receipts were provided to support how the cash was used.

4.3.6 Private element to travel and expenses

The A-G guidance on sensitive expenditure includes information on taking personal travel in conjunction with business travel and travelling with spouses or family members. The principles that apply to both is that there should be “no additional cost to the public sector entity… In the rare circumstances that involvement of a spouse directly contributes to a clear business purpose, we expect the spouse’s travel to be pre-approved”. Where public sector entities permit personal leave in conjunction with business travel, they should satisfy themselves that “the purpose of the trip was a business one… and that the arrangement did not give rise to any perception of inappropriateness”.

We have not been able to form a full picture of all relevant travel details because the records provided by Wintec are incomplete and lack detailed pre-approved rationale and itineraries. Subsequent to our audit work we have been provided with examples of itineraries which shed some light on the rationale of some of these trips. However, we found through reviewing this build-up of costs and the itineraries it was still not clear whether some elements related to personal travel.

It is important for Wintec to understand the full cost of a trip and the proportion paid for privately or provided through hospitality. Wintec should ensure that the rationale and approval covers the full itinerary of all travellers, and identifies which parts are Wintec funded, privately funded or provided by hospitality.

Our testing found a number of instances where some costs incurred through p-cards were reimbursed by staff. We found one instance where expenses on a p-card statement were annotated as personal costs, however we were unable to confirm the reimbursement of these costs. Wintec should consider whether the controls in place allowing such costs to be incurred and their subsequent reimbursement are appropriate.

4.3.7 Poor process for declaring hospitality

Where hospitality has been received by Wintec staff members, we expect there to be a transparent process for recording or declaring that hospitality. This helps manage risks associated with accepting hospitality, in particular the risk (either real or perceived) that a public entity, or particular staff members, become subject to an obligation or influence.

We have not found any monitoring or recording of hospitality received as part of the trips we reviewed.

4.3.8 Gift Policy

The A-G guidance on sensitive expenditure recognises that:

  • a public entity may give gifts in international relations when doing so is customary practice; and
  • while receiving gifts does not involve expenditure, it is a sensitive issue and one that entities need to manage carefully.

We found a range of purchased gifts that were not in line with aspects of Wintec’s policies and guidance (for example, wine, supplements, and health food). However, the guidance across the various policies is inconsistent. This means it is unclear whether some gifts complied with the policies. Wintec should clarify its guidance to make clearer what types of gifts are appropriate in these circumstances.

We also noted gifts being purchased through p-cards, rather than the purchase order system required by the Gifts Policy.

Wintec provided us with a copy of the Gifts Register for 2011 onwards. The relevant policy requires all gifts or gratuities to be recorded in the register, including gifts received on behalf of Wintec. Despite the number of visits to Hong Kong and China since 2011, there are only two gifts recorded as being received on these visits. We find this surprising given the cultural practice of Wintec giving gifts as part of the visits. It suggests the policy is not being adhered to.

4.3.9 China Agent contract

We expect that arrangements for reimbursement of costs incurred by third parties are clearly spelt out in contractual agreements. The contract should address the level of supporting documentation required as part of the invoicing process and provide a process for resolving any disputes.

Between 2009 and 2013, the China Agent paid for expenses incurred by Wintec staff in China and then invoiced Wintec for reimbursement of those expenses. We have reviewed the contracts in place between Wintec and the China Agent during this period. We found no specific mention of this arrangement in the contracts.

3: For this review, we have included the role of the Director Internationalisation. The Director Internationalisation undertook a lot of the travel to Hong Kong and China and was often the organiser of trips other executives attended. This makes the Director Internationalisation’s travel relevant to our work.