Part 2: Principles applicable to sensitive expenditure

Controlling sensitive expenditure: Guide for public organisations.

Taking a principles-based approach

Public organisations should take a principles-based approach to making sensitive expenditure decisions. Although a principles-based approach requires careful judgement, it is also flexible and more enduring and practical to administer than a large number of rules. In this Part, we describe the relevant principles for public organisations to consider when making decisions about sensitive expenditure.

We recognise that, for valid reasons, public organisations make their own decisions about what is appropriate sensitive expenditure. For example, a state-owned enterprise might make different judgements from a central government department or a local authority. However, all public organisations need to take into account the same principles when determining their approach (or attitude) to sensitive expenditure decisions.

All public organisations spend public money. Public money is not the property of people in the organisation (including members, office holders, managers, and employees) to do with as they please. Consequently, the expenditure should be:

  • subject to the standards of probity and financial prudence expected of a public organisation; and
  • able to withstand parliamentary and public scrutiny.

There are principles that underpin decision-making about sensitive expenditure. Expenditure decisions should:

  • have a justifiable business purpose that is consistent with the public organisation's objectives. A justifiable business purpose means a reason that would make clear sense, supported by evidence of the need for the spending and evidence that a range of options have been considered;
  • preserve impartiality. Impartiality means decisions based on objective criteria, rather than based on any sort of bias, preference, or improper reason;
  • be made with integrity. Integrity is about exercising power in a way that is true to the values, purposes, and duties for which that power is entrusted to, or held by, someone. It is about consistently behaving in keeping with agreed or accepted moral and ethical principles;
  • be moderate and conservative when viewed from the standpoint of the public and given the circumstances of the spending. It includes considering whether the justifiable business purpose could be achieved at a lower cost;
  • be made transparently. Transparency in this context means being open about the spending, and willing to explain any spending decisions or have them reviewed; and
  • be made with proper authority. This means that the person approving the spending has the appropriate financial delegation to do so, for the type and amount of spending and follows correct procedures.

These principles should be applied together. None should be applied alone, and no principle should be treated as more important than any other.

For example, an employee asks to take annual leave in conjunction with business travel. The request might raise issues of what the primary purpose of the trip is, as well as issues about impartiality and transparency. If it were to approve the leave, the organisation would need to be satisfied that the primary purpose of the trip was for business, that no additional cost to the organisation would be incurred, and that the arrangement could not be reasonably perceived as inappropriate.

In practice, a properly authorised individual will make the decision for each instance of sensitive expenditure. Each individual making such decisions will need to use careful judgement in accordance with the principles and within the particular context of the circumstance. The organisation should have appropriate policies in place to guide that decision-making, including training to build awareness and develop good judgement (see Part 3).

Deciding when sensitive expenditure is appropriate

Each decision about sensitive expenditure is important, even if the amount of money spent is small compared to the organisation's total expenditure. Improper expenditure could harm the reputation of, and trust in, the organisation, as well as the public sector generally.

The decisions that public organisations make to determine "appropriate" types and amounts of sensitive expenditure are likely to differ, to some degree, between organisations. This is because of the broad range of public organisations and the varying nature of their functions and activities. For example, public organisations that are involved in commercial activities might spend money on sponsorship, marketing, and hospitality for its most important customers (which allow them to compete in their particular market). This would not be usual in a government department or a school.

However, we expect all public organisations to behave in a way that supports the public's trust in government generally and in public organisations in particular.

A public organisation deciding on what is appropriate sensitive expenditure needs to consider both individual transactions and the total amount of sensitive expenditure.

Even when sensitive expenditure decisions can be justifiable at the individual transaction level, the combined amount spent on a category of expenditure might be significant and the organisation could be criticised for extravagance and waste. In other words, the organisation has failed to ensure that the expenditure of public money is proper and prudent. For example, a gift valued at $150 for an individual to mark a significant achievement or contribution might be acceptable. However, if that gift will be given to all employees of an organisation, then the total amount is likely to be considered extravagant.

Responsibilities of board members, chief executives, and managers

Setting the tone at the top

To maintain the public's trust and confidence in the public sector, board members, chief executives, and senior management need to ensure that their public organisations operate with a high level of integrity. The necessary behaviours of public servants to maintain the integrity of the public sector includes:3

  • impartiality – to treat all people fairly, without personal favour or bias;
  • accountability – to take responsibility and answer for their work, actions, and decisions;
  • trustworthiness – to act with integrity and be open and transparent;
  • respect – to treat all people with dignity and compassion and act with humility; and
  • responsiveness – to understand and meet people's needs and aspirations.

In our view, responsibility rests with those "at the top" – that is, board members, chief executives, and senior management. They need to set the highest standard for what is and is not acceptable sensitive expenditure. All leaders should actively promote ethical behaviours, through role modelling, reinforcement, and communication.4 They need to have clear policies and processes that apply to all staff, including the chief executive, senior management, and the board, and to actively model their own and others compliance with those policies. As with other aspects of organisational performance, they also need to ensure that policy and processes are regularly and independently reviewed. That review will provide assurance they are operating appropriately and provide an additional line of defence against inappropriate sensitive expenditure being incurred.

We also expect that all leaders of public organisations should ensure that staff are trained on those policies and procedures and on developing awareness and good judgement, that adequate monitoring is carried out, and that the public organisation has a view on whether it is delivering appropriate outcomes on sensitive expenditure.

Policies and procedures support an organisation's culture by clarifying what is and what is not acceptable behaviour. To be effective, sensitive expenditure policies, procedures, and other controls should link to and reinforce the organisation's values, rather than be viewed or practised as a separate activity. When these are embedded into an organisation's culture, all staff become involved in the proper and prudent management of sensitive expenditure.5

Controls and judgement

Although having strong controls will help people make good sensitive expenditure decisions, careful judgement is also needed. This is because it is not possible or desirable to set rules for every possible situation. If there are no specific rules for a specific situation, we expect those incurring and approving sensitive expenditure to use careful judgement by applying the principles listed in paragraph 2.4. In more high-risk matters, an organisation might want to be more prescriptive.

Board members, chief executives, and senior management have a particular responsibility to ensure that sensitive expenditure is appropriate for their organisation.

We expect board members, chief executives, and senior management to ensure that there is transparency in both sensitive expenditure and remuneration systems, and to avoid any trade-offs between the two.

3: Public Service Act 2020,

4: For more on ethical leadership, see: Brian Picot Chair in Ethical Leadership, Victoria University of Wellington (2019), Opportunities and challenges for Aotearoa New Zealand, Wellington.

5: For the sorts of behaviours that support public trust and confidence in the integrity of government, see: Te Kawa Mataaho Public Service Commission (2007), Standards of Integrity and Conduct, Wellington,