Principals have been instructed to reject gifts from school suppliers and quit hiring relatives, under a crackdown on widespread conflicts of interest in the state education system.

The Australian Principals Federation is clamping down on a worrying culture in Victorian schools, after receiving reports of conflicts of interest and sloppy procurement practices on a "constant basis".

The integrity crackdown comes months after a corruption inquiry revealed systemic corruption and nepotism in the education system.

The federation and school council associations are receiving reports of:​

• School council members tendering for school contracts
• Principals and councils awarding contracts to friends and relatives 
• Principals or staff employing friends and relatives. (This is still considered a conflict of interest even when a principal or relative at the school does not sit on the decision panel)
• Principals or business managers accepting gifts, invitations to events and other benefits from suppliers

The federation's Victorian branch president Julie Podbury said the practices had become so entrenched that many principals were not aware that they were engaging in improper behaviour.

"Those seeking school business have spread their largesse in order to encourage a favourable outcome," she said.

"In the new post-IBAC arena there is a very clear expectation that personally accepting such benefits is a breach of protocol and presents a clear conflict of interest."

Principals should raffle or sell the gifts to raise funds for the school, or otherwise refuse them, Ms Podbury said.

Ms Podbury said under-resourced schools had formed a habit of awarding contracts to friends in a bid to save money.

"The more you look into it the potential for conflict of interest the more you begin to realise that our culture must also change in respect to this matter.

"There needs to be properly accountable and transparent processes, so that your mate who runs a cleaning company doesn't end up being the person who services your school."

School Governance Australia managing director Graeme Lane said he was concerned that principals were avoiding school council elections, and that large payments for school buildings were not first going to the education department for approval.

The education department is preparing to deploy integrity committees across the state, which would see department officials regularly review conflicts of interest and integrity matters concerning local schools.

Education department spokesman Steve Tolley said policy on school procurement would continue to be developed next year in consultation with schools.

As it stands, department employees involved in procurement processes must refuse gifts from contractors or organisations about which they are likely to make decisions in regards to tender processes, licensing or regulation, he said.

The Independent Broad-based Anti-corruption Commission inquiry exposed a complex web of corruption and conflict of interest in state schools earlier this year.

It found that senior department officials and principals embezzled more than $2.5 million of public school funds through lucrative school contracts which were awarded to relatives.