Part 3: Preparing suitable policies and procedures

3.1
Parliament and the public should be able to have confidence that public organisations can make sensitive expenditure decisions properly and prudently. This requires:

• a principles-based approach;
• leading proper and prudent practices by example;
• approving and putting in place suitable policies and procedures;
• procedures that consistently support all staff (at all levels and roles in the organisation) to follow proper and prudent practices;
• appropriate training;
• monitoring of activities to ensure effective control of sensitive expenditure;
• carrying out regular reviews to ensure that there is compliance with policies and that the overall principles are being achieved; and
• taking corrective action on failures and learning from them.

3.2
In this Part, we describe how to take a good-practice approach to:

• sensitive expenditure policies;
• procedures for approving sensitive expenditure; and
• requirements to maintain proper supporting records for sensitive expenditure incurred.

3.3
Where public organisations diverge from the broad approach outlined in this Part, we expect them to justify their decisions with respect to the principles listed in paragraph 2.4.

Sensitive expenditure policies

3.4
Sensitive expenditure policies need to:

• make clear what types of expenditure are and are not allowed;
• outline clear approval processes that are specific about who approves what (including that expenditure should generally be approved before it is incurred) and any exceptions to that;
• set spending limits or boundaries and specify dollar limits and defined boundaries, where practicable. Otherwise, the policies need to be clear about when people are expected to exercise careful judgement as to what is actual and reasonable;
• allow a manager discretion to grant an exception (management override) to a policy or procedure only in exceptional circumstances;
• specify the monitoring and reporting regime (including when exceptions to policies have been granted) and, where applicable, controls or checks that may be applied; and
• specify the requirements for review of the policies and procedures.

3.5
As well as a general sensitive expenditure policy, public organisations should also have more specific policies for common types of sensitive expenditure, such as travel, hospitality, and gifts. Further guidance on specific types of sensitive expenditure is provided in Parts 4-9.

Procedures for approving sensitive expenditure

3.6
Sensitive expenditure should be approved only when:

• the person approving the expenditure is satisfied that it is for a justifiable business purpose that is consistent with the public organisation's objectives, and all of the principles discussed in Part 2 have been adequately met;
• approval is given before the expenditure is incurred, unless it is for small amounts (for example, taxi fares) and allowed in the organisation's policies;
• the expenditure will be within budget and where delegated authority exists; and
• approval is given by a person who is senior to the person who will benefit (or might be perceived to benefit) from the sensitive expenditure. Where that is not possible, this should be recorded, and any such expenditure should be subject to some form of monitoring.

3.7
For people in senior positions, the good practice of approval by a more senior person should be applied to the maximum extent possible. However, where there is no more senior person to approve the expenditure, an alternative approach will be needed.

3.8
In such instances, it is essential that there should be no reciprocal arrangement for approving sensitive expenditure (that is, with a person approving expenditure having their own expenditure approved by the person whose expenditure they are approving). An arrangement involving three people is one way to avoid this problem (for example, person A approves person B's expenditure, person B approves person C's expenditure, and person C approves person A's expenditure). Another way, where practical, is to have the whole management team approve the expenses.

3.9
The principle of transparency is particularly relevant to the approval of senior personnel expenses. It is worth considering having senior personnel expenses reviewed by an audit and risk committee and/or making the expenses publicly available. Publishing clear and detailed disclosures helps build and maintain the public's trust and confidence. Te Kawa Mataaho Public Service Commission has published model standards for chief executives' expenses⁶, guidance on expense disclosure process, and information on the type of expenses that should be disclosed.⁷

3.10
Where public organisations incur significant sensitive expenditure (for example, on international travel) there should be a clear documented process for gaining approval for that expenditure. This process should include preparing a clear business case that describes how the expenditure is linked to what is expected to be achieved through the travel and a budget of expected expenditure, which should be reported against when the expenditure has been incurred.

3.11
Using credit cards and purchasing cards creates the risk that expenditure, including sensitive expenditure, is incurred before it is approved. If the public organisation does not have strong controls for card expenditure, there is a risk that cards can be used for inappropriate spending. We provide guidance on using credit cards and purchasing cards in Part 4.

Supporting records for expenditure incurred

3.12
Public organisations need to retain proper supporting records (invoices and receipts) for all expenditure incurred. These supporting records need to:

• clearly state the business purpose of the expenditure. If the supplier documentation supporting a claim for reimbursement does not clearly state the business purpose, a written statement of the purpose should be included as part of the claim;
• be the original document (such as tax invoices) or electronic copies that are retained in a way that preserves the integrity and completeness of the document. Credit card statements are not adequate documentation to support reimbursement;
• document the date, amount, description, and purpose of small expenditure when receipts are unavailable (for example, tips or vending machines);
• be separate claims for each person wherever possible. Where a claim relates to more than one person, it should be made by the most senior person and list the other individuals to whom the expenditure relates. For example, when colleagues travel together for business reasons, the most senior person should pay;
• be submitted promptly after the expenditure is incurred; and
• be in English or Te Reo Māori (or independently translated before payment).

3.13
Where a business case and budget was required before the expenditure was authorised, an explanation should be provided for any incurred expenditure that is more than the agreed budget. This should be incorporated into the organisation's reporting mechanisms.

6: Te Kawa Mataaho Public Service Commission (2018), Acting in the spirit of service: Chief Executive Gifts, Benefits and Expenses, Wellington, publicservice.govt.nz.

7: Te Kawa Mataaho Public Service Commission (2018), Chief Executive gifts, benefits and expenses disclosures: A guide for agency staff, Wellington, publicservice.govt.nz.