By Hayes Knight – 8 June 2012

One of the most challenging areas we have encountered in school audits relate to issues of probity of expenditure and especially sensitive expenditure. School boards need to carefully consider the consequences of spending public funds on items of a sensitive nature by assessing how this could be perceived by the public.

The Public Audit Act 2001 raises Parliament’s concern that public entities should not enter into transactions or activities that are wasteful, or that show a lack of probity or financial prudence.  In particular, probity is concerned with whether the expenditure may be justified from a public perspective.

School boards need to carefully consider the consequences of spending public funds on items of a sensitive nature by assessing how this could be perceived by the public. Even if the amounts are not necessarily large when expressed as a cost per capita or in relation to the percentage of the school’s total expenditure, some members of the public may consider only the absolute amount and/or interpret the situation incorrectly.

Some examples of transactions that the Office of the Auditor General has listed that may be viewed as wasteful or show a lack of probity or financial prudence include:

  • excessive hospitality or entertainment;
  • failure to obtain competitive tenders for significant capital acquisitions or for large contracts for the supply of goods and services;
  • discretionary expenditure by the principal and/or the board, which is not clearly related to the operation of the school;
  • advances to staff;
  • board members and staff involvement in decisions in which they have a conflict of interest, either financial or otherwise; and
  • board members and staff using school resources for personal benefit – for example, using a school credit card as a source of temporary finance.

A useful yardstick when evaluating future proposals is to ask whether the board would be happy to justify the expenditure on a TV news clip – the “Six O’clock News Test.”

We recommend that the board or finance sub-committee regularly monitors the nature and level of spending in sensitive expenditure areas as part of their monthly meeting.

For some excellent guidance about sensitive expenditure, we refer you to the Office of the Auditor General’s good practice guide.  This may be of assistance to your school in further developing appropriate policies and practice in this area.  Click here to view this guide.