Part 1: Introduction

Public organisations spend public money. Their spending must meet standards of probity and financial prudence1 so it can withstand parliamentary and public scrutiny and support trust and confidence in the public sector.

All public organisations will incur expenditure, including sensitive expenditure, as they work to achieve their objectives. The public expects that all expenditure decisions will be subject to proper authorisation and controls.

Sensitive expenditure is any spending by an organisation that could be seen to be giving private benefit to staff additional to the business benefit to the organisation. Problems can arise with expenditure related to travel, accommodation, and hospitality, and particular care needs to be taken with these. Problems can also arise from expenditure that is unusual or is not closely related to an organisation's purpose and/or functions.

There is heightened public sensitivity when public sector employees are perceived to benefit – or do benefit – personally from sensitive expenditure incurred during the conduct of a public organisation's business.

The Public Audit Act 2001 gives the Auditor-General authority to examine and report on any act or omission that shows, or appears to show, waste or a lack of probity or financial prudence by a public organisation or one or more of its members, office holders, or employees. Appendix 1 lists our reports that discuss poor sensitive expenditure practices. We also draw attention to sensitive expenditure matters in our reporting as part of our annual audits.

From these reports, and the questions that public organisations ask us, we have identified some recurring issues in relation to sensitive expenditure. The most frequent issues that can cause public organisations difficulty or concern are:

  • the level of expenditure that is, or could be regarded as, extravagant or immoderate for the public sector;
  • expenditure incurred without a justifiable and adequately documented business purpose that has a clear link to the organisation's objectives;
  • poorly defined sensitive expenditure policy and procedures;
  • expenditure that is not adequately substantiated by invoices, receipts, or other relevant documentation to support claims or payments;
  • expenditure that is made before appropriate authority has been obtained; and
  • expenditure that is made without proper scrutiny to ensure that it complies with an organisation's policy and procedures.

Purpose of this guide

This guide is to help public organisations improve, where necessary, their organisational approach to, and control of, sensitive expenditure. The aim is to assist anyone who might deal with sensitive expenditure, including board members, chief executives, and managers responsible for sensitive expenditure policies, procedures, and controls. The guide is also designed to help all employees dealing with sensitive expenditure.

In Part 2, we discuss the basic principles (based on general public sector norms and principles) that apply to sensitive expenditure.

In Part 3, we discuss how a good-practice approach to managing sensitive expenditure should be reflected in a public organisation's policies and procedures.

In Parts 4-9, we describe specific types of sensitive expenditure.

Using this guide

This guide provides our view of good practice for controlling sensitive expenditure. We will use it when carrying out our work, including our annual audits. We intend to review this guide from time to time and publish additional and updated advice on our website.

This guide is intended to complement, and not repeat, advice that has already been published elsewhere. Appendix 2 provides a list of resources and guidance on sensitive expenditure from other organisations.

We expect public organisations to implement the principles discussed in this guide into their sensitive expenditure policies and procedures. We also expect public organisations to carry out regular reviews, monitor compliance, consider high-risk areas, and make changes to policies and procedures as necessary. Public organisations should carefully consider the advice in Parts 4-9 and the underlying principles listed in paragraph 2.4 before taking a different approach.

Public organisations are responsible for deciding whether sensitive expenditure is appropriate in the particular circumstances and for ensuring that their sensitive expenditure policies, procedures, and decisions are fit for purpose and will withstand parliamentary and public scrutiny.

This guide does not affect any legislative requirements2 that relate to sensitive expenditure – for example, any relevant tax requirements.

For those agencies within the remit of Te Kawa Mataaho Public Service Commission, this guide should be read alongside the Commission's guidance listed in Appendix 2.

1: In this guide, we define "financial prudence" as a public organisation using its resources carefully and not committing to a course of action beyond its means. We define "probity" as Parliament and the public's expectations of public organisations to act appropriately and ethically.

2: For instance, the remuneration, expenses, and allowances payable to elected members of city, district, and regional councils are set out in the Local Government Members (2020/21) Determination 2020, and actual and reasonable expenses are outlined in council policies that have been formally approved by the Remuneration Authority (but subject to the provisions in the Determinations).