Martin L.
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Queensland public sector entities, including local governments, occasionally make ex-gratia payments, sometimes called special payments, to terminated employees and third parties. Ex-gratia payments are regularly made with non-disclosure agreements/conditions.

Our recent reports to parliament have identified several significant internal control deficiencies over ex-gratia payments made by some public sector entities, including:

  • issues in authorising payments
  • failure to maintain appropriate records supporting the reason for the payment
  • inadequate policies covering when ex-gratia payments can be made and how they are made
  • lack of transparency and accountability over the payments.

This blog summarises what boards, councils, and executive management should consider before authorising ex-gratia payments.

So, what are ex-gratia payments?

An ex-gratia payment is a voluntary payment that an entity is not legally required to make under a contract or otherwise

Examples of ex-gratia payments

Some common examples of ex-gratia payments previously made by public sector entities include:

  • payments to employees on termination/resignation outside of their contractual and award entitlements
  • out-of-court settlements
  • compensation for the impact of government decisions.

Why do we consider ex-gratia payments a risk?

Ex-gratia payments pose a risk to public sector entities because:

  • there’s no legal requirement to make them
  • the payments often can’t be justified or lack transparency
  • there’s potential for these payments to come under additional public scrutiny given they involve the use of public money.

For this reason, they should only be made as a last resort. It also means that public sector entities need to develop and implement proper policies and processes to ensure their decisions are defensible.

What must boards, councils and executives of public sector entities do before making ex-gratia payments?

To ensure that ex-gratia payments made can be supported and are defensible, it is important that public sector entities have robust policies and guidance covering:

  • the type of ex-gratia payments that can be made and when they can be made
  • the basis for determining the appropriate amount paid
  • who can approve them.

Public sector entities should also maintain proper records supporting each ex-gratia payment including evidence of key decisions made and who they were made by. At a minimum, these should record:

  • the payment date and the recipient of the payment
  • the reason for the payment and how the payment amount was determined
  • whether independent advice was obtained to support the basis and amount of the payment
  • how the payment represents appropriate use of public money
  • who approved the payment
  • other payment details the executives, board or council consider relevant.

Public sector entities should also ensure they are not using non-disclosure agreements (NDAs) to try and reduce transparency of, and accountability for, the use of public money. This is explored further in our previous blog Can confidential information be disclosed in financial statements?.

Both Professor Coaldrake’s Let the sunshine in report and the Crime and Corruption Commission’s (CCC) document Use of non-disclosure agreements – what are the corruption risks? raise concerns over the use of NDAs, particularly in employee separation settlements. This is because NDAs may be used to conceal suspected wrongdoing or make payments that are unjustified or excessive.

Before deciding to use an NDA as part of an ex-gratia payment, public sector entities should ensure they have appropriately considered the guidance issued by the CCC. The CCC encourages entities to consider the use and content of NDAs to ensure they do not attempt to prevent, or are perceived as attempting to prevent, a public sector employee’s right to disclose suspected wrongdoing. In circumstances where they are used, these agreements should include information that makes it clear to employees that they can still make a disclosure to a relevant entity under the Public Interest Disclosure Act 2010 or provide information to the CCC.

What can boards, councils and executives learn from QAO’s recommendations?

Over the years, QAO has raised several significant deficiencies (significant audit findings which need to be fixed immediately) in relation to ex-gratia payments. Boards of directors and executives, including those charged with governance of local governments, should consider the following recommendations in our reports to parliament.  

In State entities 2023 (Report 11: 2023–24) we recommended:

  • All state entities should implement robust policies and procedures to ensure ex-gratia payments are appropriate, defensible, and transparent.
  • Queensland Treasury should improve awareness and understanding of guidance material available for ex-gratia payments.

In Transport 2021 (Report 10: 2021–22) we discussed the importance of:

  • Effective internal controls to ensure entities are meeting their objectives, comply with the law, and operate with transparency and integrity.
  • Strong governance and oversight arrangements to ensure propriety of decision-making by boards and senior executives, including
    • updating policies to provide guidance on payments through deeds of settlement and release
    • ensuring appropriate processes are implemented to inform the external auditor and responsible ministers of substantive matters including litigation, claims, and transactions.

Financial reporting requirements for special payments

In addition to disclosures required by the Australian Accounting Standards, some public sector entities are required to make additional disclosures about ex-gratia payments. Under the Financial Reporting Requirements for Queensland Government Agencies published by Queensland Treasury, statutory bodies and departments are required to disclose the total amount for each class of special payments, including ex-gratia payments, in their financial statements. They must also include a description of the nature of special payments that are above $5,000.

So, what are the key takeaways for those charged with governance?

Those charged with governance should ensure they are appropriately using public monies when making ex-gratia payments by following the requirements and recommendations outlined in:


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