The former head of Senate finance returned as witness at the trial of Senator Mike Duffy today, and acknowledged that policies around travel and expense claims were outdated and riddled with "risk areas."

Nicole Proulx was cross-examined by Duffy's defence lawyer, Donald Bayne, who was going over details of a 2009 audit that flagged outdated, inadequate and non-existent policies around expense claims and service contracts.

It also found that policies were not well communicated or understood by "users" that included senators and their staff.

"Would you agree that is a critically important audit finding?" Bayne asked in the Ottawa court.

"That is a very important finding, yes," Proulx said.

Bayne suggested the rules and policies should have been clarified before putting someone in a prisoner's box.

"You don't fault people without clear rules," he said.

Bayne's line of defence rests heavily on the argument that Senate policies and rules were loose and unclear, and that Duffy did not break the law handling his expenses and office budgets.

Proulx first appeared as a witness in April but testimony was suspended due to a legal question on whether another internal Senate report on residency requirements should be admissible.

Ontario Justice Charles Vaillancourt tabled a decision Thursday finding that the report is protected by parliamentary privilege.

Proulx was also asked about the oversight process for the service contracts, and specifically about contracts awarded to his friend and former colleague, Gerald Donohue and Maple Ridge Media.

While the rules specify that services must‎ be to fulfil parliamentary functions, Proulx said it was up to the senator to confirm that services were rendered to his or her satisfaction.

Nicole Proulx, former director of Senate finance, returned as a witness at the trial of Mike Duffy in Ottawa. (Sean Kilpatrick/Canadian Press)

In earlier testimony, Proulx went over the $65,000 worth of contracts Duffy entered into with Donohue. She told the court that Duffy did not have any discretion to alter the nature of the work set out in contracts signed with Donohue.

Duffy has pleaded not guilty to 31 charges of fraud, breach of trust and bribery related to Senate expense claims and a $90,000 repayment made with a cheque from then-prime minister Stephen Harper's chief of staff, Nigel Wright.

Donohue began his own testimony Thursday by video link from his home in Carp, Ont. He told the court he received payments for work for Duffy to his wife's companies — Maple Ridge Media and Ottawa ICF.

Donohue has never been an owner, employee or authorized cheque writer for the companies, but said it would be a Revenue Canada "disadvantage" to have the payments come directly to him. He also testified Thursday that he cut cheques to third-party individuals and companies through his wife's companies for services as "instructed" by Duffy.

The Crown has alleged the contracts were set up so Duffy could funnel cash to favoured contractors, some of whom provided services that were not allowable under Senate budget rules.

In this court sketch, Donald Bayne (left), the lawyer representing Senator Mike Duffy (centre), questions former director of Senate finance Nicole Proulx (right) at the Ottawa courthouse on Friday. (Greg Banning)

Donohue's testimony was paused until Monday because of technical problems.

The Crown has alleged Duffy used Donohue as a middleman to expense inappropriate or non-parliamentary services.

Court has heard that Donohue issued cheques for services expensed by Duffy that included payments to an office volunteer, a makeup artist, a photo processing firm and a personal fitness trainer. Proulx testified that bills for makeup, personal fitness and personal and family pictures do not fall under parliamentary business and can't be expensed.

She also told court that she rejected a claim by Duffy in 2009 requesting compensation for makeup services he used before posing for a Senate portrait, and wrote to Duffy explaining why the claim was turned down.

Court has adjourned and will be back Monday at 1:30 p.m. to hear more testimony from Donohoe via video link.