Sensitive expenditure: Building trust and confidence

The Office of the Auditor-General has
recently updated its good practice guide on sensitive expenditure for public sector organisations. And there is plenty in it which can help any organisation with its own sensitive expenditure policies and practices to ensure wider public confidence in your company. By Melanie Webb from the Office of the Auditor-General.

At the Office of the Auditor-General, we often remind the public sector that the public’s trust and confidence in it is driven by competence, reliability, and honesty. But it doesn’t matter where you work – those factors will drive trust and confidence in your organisation, too.
Equally, any concerns about any of those factors will damage how others see your organisation.
In October 2020, we updated our good practice guide on sensitive expenditure. This is one of those business activities that goes straight to the heart of trust and confidence.
Sensitive expenditure is defined as spending by an organisation that could be seen to be giving private benefit to a staff member, their family, or friends.
This can include using credit and purchasing cards; spending while travelling; entertainment and hospitality; goods and services; and gifts.
This might all seem self-evident. However, we often see instances where public organisations’ sensitive expenditure decisions don’t follow good practice or raise questions about appropriate spending.
There are a number of reasons why we might choose to take a closer look at this spending:

Not recognising spending as sensitive. An organisation might decide that the money it’s spending on one of those above areas doesn’t qualify as “sensitive”. However, it might find that view isn’t shared by taxpayers, ratepayers, or the media. We’ve seen, for example, an energy company fit solar panels on an employee’s house for a trial without recognising it as sensitive expenditure.
As a result, it couldn’t show what steps it took to manage any related risks, such as how to justify the potential personal benefit for the employee.

Excessive spending. An organisation might correctly identify the spending as sensitive, but it doesn’t recognise the need to be conservative with this spending.
We’ve seen, for example, a school spend $8,500 on a ride-on lawnmower as a leaving gift for a staff member.

Not following its own policies. An organisation might have gold-standard sensitive expenditure policies, but they are worthless if ignored.
We’ve seen, for example, a tertiary education institution where senior staff – against the organisation’s own rules – approved their own expenses. They also had limited evidence of prior approval for overseas trips, and kept inadequate documentation so no one could fully explain why – or how – the money was spent.
Another trap public organisations can fall into is thinking the amount of money involved is too small to worry much about.
Forgive the pun, but taxpayers and ratepayers can be (rightfully) sensitive about how their money is spent, regardless of the amount. A small sum can cost a lot more in reputational damage if it appears to have been spent improperly.
As with all spending, public organisations must manage sensitive expenditure deliberately and diligently, and be able to justify it.
Strong controls will help this withstand public scrutiny. Because what is considered “sensitive expenditure” changes over time, exercising careful judgement and following the principles in our guide will help you identify and manage sensitive expenditure in all its forms.

Expenditure should have a justifiable business purpose: The purpose of the spending must be clear, as well as consistent with your organisation’s objectives. Have evidence of the need for the spending, and proof that a range of options were considered.

Expenditure should preserve impartiality: Impartial decisions are based on objective criteria, and have no personal benefit for any employee. This gives the public and other stakeholders confidence that the spending decision was made free from bias, favouritism, or any other undue influence.

Expenditure should be moderate and conservative: Put yourself in the public’s shoes: would the spending seem reasonable to them under the circumstances? Can you achieve the same result at a lower cost? Should we really spend that much of the organisation’s money on someone’s leaving gift?

Expenditure should be made transparently: Always assume your sensitive spending will attract the interest of others. Be open about the spending, and be willing to explain any spending decisions or have them reviewed. Clearly documenting your decision-making process will help you with this.

Expenditure should be made with proper authority: Have strong policies and controls in place. Ideally, sensitive expenditure should be pre-approved wherever possible. The person approving the spending must have the appropriate financial delegation and follow correct procedures. And, again, you need to have supporting documentation so approvers know – and understand – what it is they’re approving.

Expenditure decisions should be made with integrity: Finally, another principle we talk about often: leaders must set the right tone at the top. The decisions and actions of senior leaders are more influential than the organisation’s policies. People model what they see – not what they hear or read. Act with integrity and be true to your organisation’s values. In this case, this means following all the above principles and your own sensitive expenditure rules.
These principles should be applied together, and none should be treated as more important than any other.
Our updated guidance is available on our website (oag.parliament.nz). There you‘ll also find our recently updated guidance on managing conflicts of interest and severance payments.
If you’re reading this in the public sector, we urge you to use our guidance when reviewing your sensitive expenditure policies.
If you’re working elsewhere, we think there’s plenty here that can help guide your own sensitive expenditure policies and practices.
It’s also useful to helping understand the expectations placed on public organisations when dealing with them.   M

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