The basics

The most fundamental fact that applies to all spending by a public organisation is that it is spending public money. The spending has to be able to withstand scrutiny, from Parliament and from the public.

What is "sensitive expenditure"?

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.

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.

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.

Setting the tone at the top

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. 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. 

For more information, see Part 2 of our good practice guide on controlling sensitive expenditure.