Circular 2002/01: Financial interests of school trustees
This circular is about the actions required of boards of trustees when individual trustees or their family, friends or whānau, stand to benefit from their membership of the board.
Date: 23 January 2002
Circular number: 2002/01
Category: Finance
Financial interests of school trustees
This circular is about: Actions required of boards of trustees when individual trustees or their family, friends or whānau, stand to benefit from their membership of the board.
The action required is: Note the contents of this circular and ensure boards of trustees and individual board members comply with the requirements of this circular.
It is intended for: Members of boards of trustees and principals of all state and integrated primary, intermediate and secondary schools.
Appointed auditors of schools.
For further information: Enquiries about the contents of this circular should be directed to the financial advisor for your region. Their contact details are listed at the end of this circular.
Introduction
This circular gives information, advice and guidance on the actions to be taken by school boards when a board member stands to benefit from a decision being taken by the board
Background
Legislative changes
The Education Standards Act 2001 transferred the responsibility for regulating the financial interests of school trustees in contracts over $25,000, to the Ministry of Education.
Under the Local Authorities (Members' Interests) Act 1968, if a school trustee had a contract or contracts, with the board of trustees worth more than $25,000 a year in total, then that person was disqualified from being a school trustee unless the board had approval for that contract from the Controller and Auditor General.
The Education Standards Act removed boards of trustees from the schedule of the Local Authorities (Members' Interests) Act and in terms of section 103A of the Education Act 1989 the function of approving these contracts rests with the Secretary for Education.
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Definition of interest
Financial interests in contracts greater than $25,000
As defined in the Education Standards Act 2001 a trustee is "concerned or interested" in a contract where:
- the trustee is personally a party to the contract; or
- if the contract is between the board and a company and
- the trustee owns 10% of the shares in that company (or another company which controls it), or
- the trustee is the managing director or general manager (whatever they are called) of the company
Other financial interests
A trustee has a `pecuniary interest' where they stand to benefit from the actions of the board, regardless of the nature or the dollar value of the board's actions. The test used by the Auditor General is `A pecuniary interest exists where the matter would, if dealt with in a particular way, give rise to an expectation of gain or loss of money'.
For example, the staff representative on a board of trustees has an interest in the actions of the board when it is considering whether to deduct pay for strike action by teachers.
Trustees have an indirect interest when their spouse/partner or children, their whānau, or their close friends and relatives stand to benefit from the actions of the board.
For example, if a painting and decorating company owned by the sister in-law of a board member tenders for a painting contract, that member has an interest in the contract.
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Action to be taken when a board member has a financial interest in a contract greater than $25,000
If a school trustee or a board committee member is interested in any contract or contracts with the board worth more than $25,000 a year, that person will be disqualified from being a school trustee or board committee member, unless the board obtains the approval of the Secretary for Education for that contract.
Process for applications for approval of contracts
Where a member of the board of trustees declares a financial interest in a contract being let by the board, the board must apply to the Secretary for Education for approval prior to the contract being entered into. Although the Secretary may retrospectively approve contracts that have already been entered into, the approval process is not an automatic one and boards are advised to seek approvals before they enter into the contract. This allows both the board and the school trustee concerned an opportunity to consider whether to proceed with the contract.
Applications for approval should be made to the Secretary for Education, attention Senior Financial Advisor, Ministry of Education, P O Box 1666, Wellington. The application should address each of the criteria listed below. In particular the application must set out the reasons why the board wishes to enter into the contract, why the school trustee has been selected as the prospective contractor, and what decision making processes the board has followed. The board should include a copy of all minutes relating to the contract decisions.
Note that the contract should not have been entered into prior to approval being sought, although it is permissible for the board to have conditionally entered into the contract subject to obtaining the Secretary's approval.
Criteria for approval of contracts
Guidelines for the approval of contracts are being published in the New Zealand Education Gazette dated 11 February 2002. These guidelines are attached as Appendix A. The Secretary must be satisfied there is no risk the school trustee who has a concern or interest in the contract has used their position on the board to receive preferential treatment from the board.
In order to determine whether there is a risk of preferential treatment, the Secretary will consider whether:
- The board has taken all reasonable steps to ensure potentially interested parties had an opportunity to tender for the contract;
- The board has considered and evaluated each of the tenders or quotes, and can justify the preferred choice on the basis of cost, performance, or quality of service;
- The board has resolved to accept the contract subject to the Secretary's approval;
- The board minutes record that the trustee who is "concerned or interested" in the contract, declared that interest and excluded themselves from meetings of the board when the matter was being considered.
Note that in the case of retrospective approval, where the contract has already been entered into when the board makes its application, the Secretary also needs to be satisfied there is sufficient good reason why the board did not apply for prior approval. The board will need to provide an explanation of why approval was not sought in advance.
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Action to be taken when a board member has a pecuniary interest
The Local Authorities (Members Interests) Act prohibits local authority members from discussing or voting on matters in which they have a pecuniary interest. The Controller and Auditor General has the power under that Act to grant exemptions in certain circumstances to allow members to participate in such matters. Now boards of trustees are no longer local authorities within the meaning of that Act, these provisions no longer apply.
However, the Education Act contains a similar provision. Clause 8(8) of the 6th Schedule states that any trustee who has a pecuniary interest in any matter must be excluded from any meeting of the board while the board discusses, considers anything relating to, or decides the matter.
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Suggested action when the family, whānau or friends of a board member have a financial interest
There are no legislative restrictions or guidance placed on boards of trustees whose actions may benefit the family, whānau or friends of a trustee. However, it is prudent that the board and each of its members be, and be seen to be, completely free of any improper influence.
It is therefore recommended all boards of trustees adopt policies or guidelines that define a broad application of the term Pecuniary Interest. These guidelines would include under the definition of Pecuniary Interest situations where a board member's family, whanau or close friends stand to benefit by a decision of the board. When this situation arises the affected board member will therefore be excluded from board meetings under Clause 8(8) of the 6th Schedule of the Education Act 1989.
Boards may also wish to establish a register that records the details of all declared interests.
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Advice and support
The ministry has five financial advisors who are experienced in financial matters relating to school boards and business operations. If you have any questions or concerns about the interests of trustees please contact the financial advisor for your region.
Carmel Riordan
Northern Region Financial Advisor
Private Bag 92 644, Symonds St
Auckland 1150
Phone: 09 632 9440
Fax: 09 632 9401
Email: carmel.riordan@minedu.govt.nz [NO SPAM]
Ann Clarke
Central North Region Financial Advisor
P O Box 147, Napier
Phone: 06 833 6734
Fax: 06 833 6731
Email: ann.clarke@minedu.govt.nz [NO SPAM]
Phil Carver
Central South Region Financial Advisor
PO Box 301 77, Lower Hutt
Phone: 04 463 7634
Fax: 04 463 8698
Email: philip.carver@minedu.govt.nz [NO SPAM]
Tracy Summerfield
Southern Region Financial Advisor
PO Box 2522, Christchurch
Phone: 03 378 7777
Fax: 03 378 7308
Email: tracy.summerfield@minedu.govt.nz [NO SPAM]
David Stephen
Senior Implementation Advisor
PO Box 1666, Wellington
Phone: 04 463 8250
Fax: 04 463 8252
Email: david.stephen@minedu.govt.nz [NO SPAM]
Alan Curtis
Acting Lead Advisor Operational Policy
PO Box 1666, Wellington
Phone: 04 463 8797
Fax: 04 463 8252
Email: alan.curtis@minedu.govt.nz [NO SPAM]
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Issued by
Steve Kelsen
Senior Financial Advisor
National Office
45 - 47 Pipitea Street, Thorndon
P O Box 1666, Wellington, New Zealand
Phone: 0-4-463 8000
Fax: 0-4-463 8001
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Appendix A
Guidelines for approval of board contracts notice 2002
Pursuant to section 103A(5)(b) of the Education Act 1989, the Secretary of Education gives the following notice:
Notice
- Title and commencement
(1) This notice may be cited as the Guidelines for Approval of Board Contracts Notice 2002.
(2) This notice shall come into force on the day after the date of its publication in the Gazette.
- Guidelines for approval of contracts
For the purposes of section 103A(5)(a) of the Education Act 1989, every application by a Board of Trustees for approval by the Secretary of a contract to which section 103A(2) applies shall be considered in accordance with the guidelines specified in clauses 3 and 4 of this notice.
- Prior approval
(1) Before approving any application for a contract which has not yet been entered into, the Secretary must be satisfied that there is no risk that the school trustee who has a concern or interest in the contract has, or may have, received preferential treatment.
(2) In order to determine whether there is a risk of preferential treatment, the Secretary will consider:
- whether the Board has taken all reasonable steps to ensure that all potentially interested parties had an opportunity to tender for the contract;
- whether the Board has considered and evaluated each of the tenders or quotes, and can justify the preferred choice on the basis of cost, performance, or quality of service;
- whether the Board has resolved to accept the contract subject to the Secretary's approval;
- Whether the Board minutes record that the school trustee who is concerned or interested in the contract, declared that interest and excluded themselves from meetings of the board when the matter was being considered.
- Retrospective approval
(1) Before approving any application for a contract which has already been entered into, the Secretary must be satisfied that, in addition to the matters specified in clause 3, there is sufficient good reason why prior approval was not obtained.
Dated this day of 2003.
Secretary for Education