public purpose expenditures purpose expenditure.pdfstate auditor public purpose doctrine: step 2 of...

© 2012 Office of the Minnesota State Auditor

Public Purpose Expenditures

Office of the State Auditor Nancy Bode, Assistant Legal Counsel Region V Annual Spring Conference

March 29, 2012


Office of the State Auditor Role and Responsibility

Constitutional Office Financial oversight includes:

Counties Cities School Districts Towns Fire Relief Pension Funds Soil and Water Conservation Districts Port Authorities TIF Districts As well as approximately 150 other special districts


Office of the State Auditor Divisions

Audit Practice Pension Tax Increment Financing Government Information Legal/Special Investigations


Legal/Special Investigations Division

The Legal/Special Investigations Division investigates allegations of theft or misuse of public funds. It also provides legal compliance information and training to local government officials.


Public Purpose Doctrine: General Rule

Gov’t entities can’t

just give away public funds


Public Purpose Doctrine: Step 1 of Analysis

Gov’t entities Only have powers granted to them Must have authority to make an expenditure

Statutory or charter (ordinance is not enough) Express powers Implied powers (“implied as necessary in aid of

those powers which have been expressly conferred”)


Public Purpose Doctrine: Step 2 of Analysis

Expenditure must be for a public purpose Constitutional requirement (MN Const. art. X, sec. 1) “Such an activity as will serve as a benefit to the

community as a body and which, at the same time, is directly related to the functions of government” Visina v. Freeman, 89 N.W.2d 635 (Minn. 1958)

Applies to “funds of governmental entities derived not only from taxation but from other sources as well.” Op. Att’y Gen. 107-A-3 (Jan. 22, 1980) (hospital board). See also Op. Att’y Gen. (Nov. 16, 1949) (money from library fines, locker rentals & similar items must be spent for authorized purposes)


Gifts/Donations to Private Individuals/Organizations

No donations to people, nonprofits, charities, or other groups unless based on specific statutory or charter authority

Assumption: Gift of public funds serves private, not public, interest


Statutory Authorization Statutes vary for different gov’t entities Examples of school district statutes:

Employee recognition program (Minn. Stat. § 123B.02, subd. 14a)

Extracurricular & co-curricular activities (Minn. Stat. § 123B.49) Trust to provide district pupils with advanced education after

completion of high school (Minn. Stat. § 123B.02, subd. 6) Resources:

UFARS and MAFA OSA Statement of Position on Public Expenditures: Donations

and Dues (no school examples)


Statutory Authorization Authority to appropriate and use money for a

purpose does NOT mean authority to contribute money to a body generally committed to advancing a purpose per AG’s Office

Can’t give money to an organization to use as it sees fit

May be able to contract with the organization to perform authorized government activities


Lack of Statutory Authorization to Donate Per AG’s Office

Can’t donate to Boy Scouts - Ops. Att’y Gen. 59-A-3 (May 21, 1948; Sept. 28, 1933)(cities).

But, may be able to

contract with the Boy Scouts to help clean school property


Lack of Public Purpose Per AG’s Office

Bonus for past services is a “gift” - Op. Att’y Gen. 107-A-3 (Jan. 22, 1980) (county hospital board)

Holiday parties for employees – Op. Att’y Gen. 59a-22 (Nov. 23, 1966) (city)


Employee Recognition Events School boards may establish and operate an

employee recognition program (Minn. Stat. § 123B.02, subd. 14a) Program may not include monetary awards

OSA Statement of Position on Employee Recognition Programs and Events Need a program Not parties for all employees Can’t pay for spouses or third parties to attend event No purchases of alcoholic beverages


“Convenience Accounts”

Also called Sunshine Fund, Flower Fund, Employee Coffee Fund, etc.

Employee funds, not public funds, so not subject to Public Purpose Doctrine

Maintained outside school, district, or student activity accounts (no co-mingling)

Used for flowers for funerals, employee picnics & parties


Ballot Issue Advocacy School Board has no express legislative authority to

expend public funds to advocate for or against a ballot question (Abrahamson v. St. Louis County School District 2142, Minn. Ct. App., Aug. 1, 2011; case has been argued in MN Supreme Court – no decision yet)

School boards may spend a reasonable amount to educate voters, but publications must not promote a vote for or against the issue per AG’s Office

OSA Statement of Position on Expenditure of Public Funds on Ballot Issue Advocacy


Meals for Public Employees & Officials

Meals at (before or after) meetings

Staff-on-Staff meals

School board may furnish school lunches for pupils and teachers on such terms as it determines (Minn. Stat. § 123B.02, subd. 13)

Otherwise, depends upon necessity for holding a particular meeting during meal time, and benefits derived from providing food during meeting

Entertainment expenses not OK Op. Att’y Gen. 63a-2 (May 6, 1965)

(city); Op. Att’y Gen. 285a (Aug. 7, 1969) (library board)


Meals for Public Employees & Officials Meal at event

hosted by outside organization

OK if attendance is beneficial to school district

Propriety of expenditure is a factual determination for governing body

Op. Att’y Gen. 63a-2 (May 6, 1965) (city)


Student Activity Funds Monies raised by and for students for student

body organizations, clubs or groups for educational, recreational, or cultural purposes

MAFA examples of appropriate and inappropriate expenditures (pages 20-21) Expenses must directly benefit students who

raised money Distinguish between accounts under board control

and accounts not under board control Can’t purchase personal items for staff members


Personal Use of District Property & Equipment

District should have policies District vehicles – see Minn. Stat. § 471.666 Use by district employees for non-work

related purposes or for personal profit


Vending Machines

Accessible to public Formal contracting procedures apply Proceeds of sales or licensure are public funds

Accessible to employees only If employees handle all aspects of machine

operation, then not public funds

See OSA Statement of Position on Vending Machines


Education Foundation, Booster Club, PTO, PTA Handle own funds

External, separate bank accounts (not in school, district, or student activity accounts)

Own TIN If donation to district, dollars or equipment

donated become district (public) property Resources:

OSA Statement of Position on Education Foundations

MAFA guidelines for Booster Club, PTO, PTA (pages 7-8)


Time to Play: Stump the Finance Officer

Was the expenditure VALID or INVALID?


Stump the Finance Officer

After a contentious School Board meeting: District catered lunch the next day for

district employees District staff went out for drinks

Valid or invalid?



District bought golf clubs and golf club membership for a retiring superintendent

District held retirement party for retiring superintendent

Valid or invalid?



School district gave surprise bonus to all employees (or to superintendent) at the end of the school year

Valid or invalid?



In recognition of students’ improved test scores, selected teachers awarded $50 gift cards

Valid or invalid?



School district pays the filing fees (with MN Sec’y of State) for non-profit Education Foundation

Valid or invalid? Minn. Stat. § 465.717, subd. 1, prohibits a

school district from creating a for-profit or a not-for-profit corporation unless explicitly authorized to do so by law



District bought

flowers for teacher who was in the hospital

Valid or invalid?



District credit card used for personal purchases – but paid back the district

Funds temporarily borrowed from petty cash – but paid back

Cash personal check out of funds awaiting deposit


Why Should You Care?

Bad PR Public mistrust State Auditor letter Taxpayer lawsuit


If Discover Evidence of Unauthorized Expenditure Minn. Stat. § 609.456 reporting requirement Employee/officer of local gov’t entity who

discovers evidence of theft, embezzlement, unlawful use or misuse of public funds or property

Must promptly report to state auditor (in writing) and to law enforcement

Identity of 609.456 reporter is private data (Minn. Stat. § 6.715, subd. 2)

Reporting form is on OSA website


Website: www.auditor.state.mn.us

Statements of Position Investigative Reports Internal Control Letters E-Updates (Avoiding Pitfalls) 609.456 Reporting Forms And More . . .


Contact Information

Nancy Bode

525 Park Street, Suite 500 St. Paul, MN 55103

(651) 297-5853 [email protected]

public purpose expenditures purpose expenditure.pdfstate auditor public purpose doctrine: step 2 of...

Documents