Beware of These 3 Common Types of Unlawful Expenditures

CPAs & Advisors

Christina LaVielle
Christina LaVielle Manager CPAs & Advisors

Print Friendly, PDF & Email

Many local government officials and employees struggle with determining what is considered a lawful expenditure. While some expenditures may appear to be lawful at first glance, it is important that government officials and employees be aware of the basic guidelines and legal restrictions for expenditures. This will help to ensure that all purchases made by the governmental unit are allowable and in compliance with laws and regulations.

Essentially, governmental units are not to expend public funds on activities that do not benefit the residents of the governmental unit or are unrelated to operating the governmental unit.

The following are three common examples of unlawful expenditures that may be incurred by a governmental unit and suggestions for how to avoid them.

  1. It may seem completely reasonable for an employer to offer refreshments for employees such as coffee, soda or bottled water. It is also very common for employers to host company picnics in the summer for employees, or parties around the holidays. These are not allowable expenditures for governmental units since the purchases are not benefiting the general public and are not furthering the government’s activities. To avoid these expenditures, employees of governmental units often will pool their own funds to purchase bottled water, coffee, soda, and other refreshments. If the governmental unit wants to host a picnic or party, they can avoid unlawful expenditures by opening up the event to the public which may or may not be ideal depending on the size of the governmental unit and other factors.
  2. Another typical unlawful expenditure for governmental units is the purchase of retirement gifts for employees or officials. For example, a city is not allowed to purchase a recognition award for a firefighter who has worked for the governmental unit for 30 years. This can be a controversial area for employers because they want to recognize employees for their years of service and commitment to the governmental unit. These expenses are specifically not allowable per the State of Michigan. These expenditures can also be avoided by asking employees to contribute to purchasing the award rather than the governmental unit incurring the expenditure.
  3. Finally, purchasing flowers or cards for sick employees or for someone who has passed away is not an allowable expenditure for a governmental unit. This can also be a sensitive subject as employees may be close or want to express their sympathy to a fellow co-worker; however, these types of items should not be purchased with governmental monies. Again, collecting amounts from employees voluntarily for these expenditures is the easiest way for governmental units to avoid these types of charges.

To help avoid incurring unlawful expenditures, those charged with approving expenditures should be knowledgeable in what is considered unlawful by law. Governmental units should educate employees who have authority to make purchases, or access to a government credit card, about common unlawful expenditures. Including the definition and examples of unlawful expenditures in the governmental unit’s purchasing policy will also help to clarify what unlawful expenditures are and will help to ensure that the governmental unit remains in compliance.

Want To Learn More?

Connect with one of our professionals today.