Report of the
Controller and Auditor-General
Tumuaki o te Mana Arotake
Certain Matters Arising from
Allegations of Impropriety at
Transend Worldwide Limited
Overview by the Controller and Auditor-General
This report concerns Transend Worldwide Limited (Transend), a wholly-owned subsidiary of New Zealand Post Limited (New
Transend is a company that is responsible for marketing to overseas postal agencies the expertise in postal reform and
operating a modern postal system that has been built up within New Zealand Post. Until September 2001, Transend was also
responsible for New Zealand Post’s international mail services, by far the major business of the company. The Board of
New Zealand Post (the Board) governs Transend.
Following its 2000-01 financial review of New Zealand Post, the Finance and Expenditure Committee recommended that I
provide assurance that Transend has made improvements to its policies and procedures, following allegations about its
operations. The Committee’s concerns related mainly to the adequacy of the process that the Board had followed to
investigate the allegations and whether any problems identified had been fixed.
This report is about:
the governance arrangements that the Board has for Transend;
the investigation process instituted by the Board in March 2001, following the receipt by a Board member of two
anonymous letters alleging wrongdoing within Transend;
the Board’s response to the results of the investigation; and
the extent to which the problems identified have been addressed.
In carrying out our inquiry, we examined:
the adequacy of governance and accountability arrangements for Transend;
the investigation process that the Board undertook; and
Transend’s policies and procedures for letting tenders, compliance with financial delegations, and controls over travel,
accommodation and business expenses.
The allegations about Transend’s operations have played out in the public domain over the past two years. In preparing
this report, we felt that it was important to clearly outline the sequence of events and provide assurance that the
necessary improvements have been made to Transend’s policies, procedures, and operations.
Governance and Oversight of Transend
The current arrangements for New Zealand Post to exercise governance and oversight of Transend, and for Transend to be
accountable for its actions to New Zealand Post, are appropriate.
During the period of events described in this report, the accountability arrangements did not always work as intended.
The Board did not always receive reports providing realistic assessments of issues facing Transend. Several enhancements
were made later to improve the arrangements.
During the period November 2000 to June 2001, six new members were appointed to the eight-member Board to replace those
members whose term had expired. Having six new Board members over a period of eight months disrupted the continuity of
the Board’s consideration of very major issues. For the future, we believe it desirable that expiry of the term of
appointment of members of the Board of a State-owned enterprise be spaced at longer intervals.
The Process to Identify and Investigate the Allegations
The process that the Board adopted in early 2001 to identify and investigate the anonymous allegations about Transend’s
operations was complex and involved a high degree of confidentiality. We are in no doubt that the Board took the
anonymous allegations very seriously.
The Board took legal advice on how to communicate with the anonymous employees and gather information from them on a
confidential basis. The process used to identify the allegations generally followed this legal advice. The process led
to staff nominating other staff whom they felt could be approached confidentially for information, which resulted in a
climate of mistrust within Transend.
The Board completed the process of identifying the allegations and undertook further enquiries itself and through
PricewaterhouseCoopers (PwC). After reviewing the PwC report, the Board concluded that there were no problems of
impropriety but that improvements in compliance with procedures were required. The Board decided that it had
satisfactorily investigated the allegations and that further enquiry was not necessary.
However, in our view, a significant deficiency in the Board’s approach was that it did not consider or seek legal advice
on how the principles of natural justice would be accorded to the Transend staff who were the subject of the
allegations. Those staff were never given any opportunity to respond.
New Zealand Post took appropriate steps to address the issues arising from the investigation of the allegations. The
Board sought a number of reports from the Chief Executive and the Chief Financial Officer including the steps taken to
strengthen policy compliance, financial management governance and reporting to the Board.
Reasonableness of Transend Travel Expenditure
The substantive changes to Transend’s policies and procedures were made only after the appointment of the current Acting
Managing Director on 12 March 2002. In our review of Transend expenditure, we found that in the period before his
appointment, there had been a failure by the management of Transend to consider whether the expenditure that was being
incurred by some staff was reasonable.
The Transend travel policy at this time differed from New Zealand Post policy in some key respects. The Board approved
some but not all exceptions to the New Zealand Post policy in September 2000. Some parts of the Transend policy were not
appropriate. The policies allowed a small number of Transend staff to incur expenditure that was wasteful and excessive.
Since late-2001, Transend staff numbers have been considerably reduced as it ensures that its expenditure is aligned
with revenue. The senior management of Transend has been mostly replaced. Under the new management, there is a clear
focus on consultancy services. Transend’s travel policy has been aligned with that of New Zealand Post and expenditure
is closely monitored.
Our review of travel, accommodation, and business expenditure since the changes showed adherence to the latest Transend
policy. The latest Transend policy needs to provide further guidance on what is acceptable hotel accommodation, and meal
and entertainment expenditure.
Lessons to be Learned
We think there are important lessons for all public entities arising from our report, including:
The governance structures for subsidiaries must be closely monitored to ensure that they work effectively. In the case
of subsidiaries where the parent board has ultimate responsibility, there must be comprehensive and realistic reporting
to the parent board about the subsidiary’s activities.
Subsidiaries operating overseas pose particular risks that must be carefully managed.
In general, the same policies and procedures should apply to the group (parent and subsidiaries). Any exceptions should
be approved at an appropriate level. The need for the exceptions should be monitored carefully.
Entities must ensure that they have adequate procedures in place to regularly examine compliance with policies and
delegations and whether they remain appropriate.
Credit card spending continues to be an area of risk and must be closely scrutinised.
Public entities should encourage their employees to use the procedures set out in the Protected Disclosures Act 2000
(including their own internal procedures established under the Act) for making disclosures of serious wrongdoing, unless
there is a sound reason for using alternative procedures. They should ensure that the procedures are adequately
communicated to staff.
These are matters that New Zealand Post has addressed in its policy and practice.
An inquiry of this nature can be difficult for all parties involved. I acknowledge the assistance received from New
Zealand Post in carrying out our inquiry. Access was provided to all the information we needed. Everyone we spoke to was
at all times helpful and co-operative.
K B Brady
Controller and Auditor-General
16 December 2002
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