Finance and ethics
For a board to meet its primary objectives, it must perform its functions and exercise its powers in a financially responsible way.
This is laid out in Section 127 of the Education and Training Act 2020open_in_new.
It's crucial for boards to act ethically, particularly in finance, as they deal with public/taxpayer funds.
What are public funds?
Funds (income) received by boards, whatever the source, automatically become public funds, and boards are accountable for all expenditures they make.
Boards must make sensible financial decisions that support the effective operation of the school, and all spending should be consistent with the outcomes agreed in the budget and strategic plan.
Funds should not be spent on anything considered extravagant or wasteful, and sensitive expenditure should be managed appropriately.
What is sensitive expenditure?
Expenditure is deemed sensitive when it could appear to benefit an individual, be spent inappropriately, or not be in the school's best interest.
The Office of the Auditor General (OAG) provides a set of principles that should underpin any decision-making about sensitive expenditure.
They state that expenditure decisions should meet the following criteria.
- Have a justifiable business purpose
- Preserve impartiality
- Be made with integrity
- Be moderate and conservative
- Be made transparently
- Be made with proper authority.
Your board should take extra care when making decisions about large purchases or long-term financial commitments.
The decisions you make now can impact your school's financial situation for many years to come.
Common examples of sensitive expenditure include travel, hospitality, principal, and board expenditure.
How do you demonstrate ethical behaviour?
The ethics in finance incorporate truthfulness, integrity, honesty, justice, and fairness.
Your board must be able to demonstrate:
- Probity – having strong moral principles, honesty, and decency.
- Prudence – being cautious, careful, practical, and applying good sense and judgement.
Some ways you can do this are:
- Managing any sensitive expenditure
- Having robust policies and procedures in place
- Capturing financial discussions and decisions in your board meeting minutes
- Ensuring your annual financial information is prepared and audited,
- Being transparent by making your annual report available to the public
- Actively managing any conflicts of interest.
How do you manage conflicts of interest?
A conflict of interest happens when a board member has an interest or duty that conflicts with the interests or duties of the board itself.
A conflict of interest can also occur if there's the possibility of conflict or a perception of conflict.
The interest can affect making unbiased decisions and carrying out board member duties.
According to the Office of the Auditor-General (OAG) publication "Reflections from our Audits: Governance and Accountability” (April 2016)open_in_new:
“Conflicts of interest are not necessarily a problem – they are a reality. It is how they are identified and managed that determines whether they are a problem or not.”
Board members need to manage their interests transparently and not compromise decision-making.
There are three steps board members need to take:
- Recognise there is a conflict of interest
- Disclose the conflict of interest
- Manage the risks associated with the conflict of interest.
Note: For contracts above $25,000 that a board member has a financial interest in, the board must get prior approval from the Secretary of Education before proceeding.
Refer to the relevant section of the Financial Information for Schools Handbook (FISH)open_in_new for more information.
Questions your board could ask
- How do we manage sensitive expenditure?
- Do we have the right finance policies and procedures in place?
- Do we capture financial discussions and decisions in our board meeting minutes?
- Do we ensure our annual financial information is prepared and audited each year?
- Is our annual report available to the public?
- Do we actively manage any conflicts of interest?
Templates, resources, and references
Click on the link(s) below to access the templates, resources, and references related to this topic.
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Ministry of Education
Education and Training Act 2020
Office of the Auditor General