The Office of the Auditor-General has published Severance Payments: A guide for the public sector.
Controller and Auditor-General John Ryan says because severance payments are discretionary and sometimes large, they are likely to come under scrutiny and might attract media or other interest.
"I encourage public organisations to take a principled and practical approach to these situations. The basic principles of accountability, integrity, and fairness always need to be considered."
Mr Ryan says the risks associated with severance payments have led Parliament to include disclosure requirements in several Acts of Parliament, including the Crown Entities Act 2004 and the Local Government Act 2002.
"As part of the normal audit work each year, the auditors I appoint check whether required disclosures have been properly made. The auditors may also comment on severance payments that are unusual or not in keeping with public sector expectations."
He says public sector employers need to make sure that they have good reasons for making a severance payment, that the level and form of the payment is appropriate, and that the decision is properly authorised.
"Severance payments must be based on a careful assessment of the costs, benefits, and risks of the approach, and on proper legal and tax advice. Employers need to be aware that they should not promise complete confidentiality as it can be overridden by statutory disclosure requirements."