Inquiry into certain aspects of Te Wânanga o Aotearoa
FULL REPORT: http://www.oag.govt.nz/2005/twoa/default.htm
Foreword & Summary Follow...
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Foreword
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My inquiry into Te Wânanga o Aotearoa (TWOA) found practices that are unacceptable for a public entity. I found poor
record-keeping and a consistent lack of documentation. What documentation I did see was often incomplete.
Three themes were common to many of the activities I looked at:
poor decision-making practices for significant expenditure;
inadequate identification and management of conflicts of interest; and
unacceptable practices in senior management expenses concerning international travel and credit card expenditure.
TWOA and the Aotearoa Institute Te Kuratini o Ngâ Waka Trust Board (the AI Trust), a private organisation, have a close
and ongoing business relationship, which dates back to TWOA’s establishment. It covers many different transactions, some
of which are informal and unclear. I am concerned that TWOA has an unhealthy dependency on the AI Trust. TWOA could be
left in a vulnerable position should its relationship with the AI Trust deteriorate or end. This creates significant
risks for TWOA and its stakeholders.
I consider that many of the individuals involved in TWOA have not appreciated the need to act with a public sector
mindset. While tertiary education institutions have a wide functional and geographical spread and a high level of
autonomy, they are still part of the public sector.
TWOA grew rapidly and significantly in recent years. During this time, it did not put in place appropriate systems and
processes for such a large operation. Work is now being done on new policies and procedures, but it is taking too long
to embed them into the culture and everyday practices of TWOA.
TWOA has enabled thousands of learners to have a second chance at education. I do not want my report to detract
unnecessarily from TWOA’s undoubted achievements. However, TWOA needs to bring the same level of commitment to using its
public resources responsibly as it has to pursuing its educational vision.
Practices like those discussed in my report can be very damaging to the credibility of the public entity involved. It is
not in anyone’s best interests that they recur, whether at TWOA or anywhere else. I encourage central government
agencies to consider carefully whether further guidance for, and monitoring of, tertiary education institutions is
appropriate.
K B Brady
Controller and Auditor-General
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SUMMARY
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Inquiry into certain aspects of Te Wânanga o Aotearoa
Summary
Te Wânanga o Aotearoa
TWOA personnel
Relationship with the AI Trust
Our expectations
Recurring themes in our findings
We began an audit and inquiry into Te Wânanga o Aotearoa (TWOA) after receiving a request for assurance from the then
Associate Minister of Education (Tertiary Education) in September 2004. There were concerns about possible conflicts of
interest in transactions worth large sums of money. Other issues emerged as we began our inquiry.
In February 2005, then MP the Hon Ken Shirley and the media made certain allegations. The then Minister of Education
asked us to look into more matters. We reconsidered the scope of our work, released wider terms of reference in March
2005, and continued with our inquiry.
We did not examine all aspects of TWOA’s activities. Our inquiry did not examine:
the appropriateness of the type of, and funding levels of, courses offered by TWOA;
the quality of the courses delivered by TWOA; and
TWOA’s enrolment practices (including allegations about the use of inducements).
When we discuss TWOA’s educational courses in this report, our focus is on the decision-making processes in acquiring
and setting up courses, and on conflicts of interest. We have not attempted to form any view on the quality of any of
TWOA’s courses. We note that the TWOA personnel we encountered displayed a strong commitment to, and passion for, TWOA,
its educational goals, and its activities.
Our inquiry looked at:
the relationship and business arrangements between TWOA and the Aotearoa Institute Te Kuratini o Ngâ Waka Trust Board
(the AI Trust), and their controlled entities;
how TWOA identified and managed conflicts of interest;
how TWOA handled employing or contracting with close relatives of the chief executive;
selected payments to members of the Council and employees of TWOA;
TWOA’s acquisition of certain land and buildings;
TWOA’s acquisition of goods and services, especially where TWOA Council members, employees, or their close relatives
were involved;
how TWOA acquired and set up courses; and
TWOA’s international travel policies and practices.
We selected specific practices and transactions, and looked mainly at the 2002, 2003, and 2004 financial years.
We found practices that are unacceptable for a public entity.
However, the many negative comments in this report are explained by the selective nature of our inquiry. We have not
conducted a comprehensive review of all of TWOA’s activities, but have reported only on issues of significant concern
within the areas we examined. We do not want to detract unnecessarily from TWOA’s undoubted achievements.
Te Wânanga o Aotearoa
TWOA is a wânanga – a publicly funded tertiary education institution formed and governed under the Education Act 1989.
It has the legal status of a Crown entity and a public entity. TWOA has one subsidiary, a company called MO1 Limited.
TWOA was established in July 1993. In the last 5 years, TWOA has grown rapidly. From just over 1000 students in 1999, by
2003 it had 63,387 students enrolled (equating to 34,280 equivalent full-time students) and 1232 equivalent full-time
staff. Measured in enrolments, TWOA had become the largest tertiary education institution in New Zealand. In 2004, it
received $156 million in Crown funding.
TWOA personnel
Our report focuses heavily on Rongo Wetere and members of his whânau. The fact that we name them does not mean that they
are solely responsible for governing and managing TWOA. TWOA is a large organisation and many other individuals play
important roles in its governance and management, but it has not been necessary to name them.
Rongo Wetere is the Tumuaki, or chief executive, of the organisation. We were told that he has been an inspirational and
visionary leader, and that much of TWOA’s success can be credited to him.
But leadership without prudent management is fraught with risk. As Tumuaki, Rongo Wetere was primarily responsible for
managing TWOA, under the oversight of TWOA’s Council. In some areas of management – for example, avoiding conflicts of
interest and managing sensitive expenditure – he has failed to understand the need for robust policies and procedures.
He has also failed to lead by example, and has often not complied with the few procedures that were in place.
However, TWOA’s Council and senior management have also been involved in, and aware of, many of the problems that we
discuss. Rongo Wetere has not had adequate help and advice from those around him.
We note that TWOA has been making changes from 2003. In particular, there has been much work on new policies and
procedures. It is taking too long to embed these policies and procedures into the culture and everyday practices of
TWOA.
Relationship with the AI Trust
A private organisation, the AI Trust, was instrumental in promoting the establishment of TWOA in the early 1990s. The AI
Trust was composed of a small group of volunteers who were committed to providing learning and employment opportunities
for Mâori who had few or no job skills or qualifications.
Many of the people discussed in this report have been involved with TWOA from when it was established, and have had
significant roles in both TWOA (a public entity) and the AI Trust (a private organisation). People we spoke to consider
that TWOA and the AI Trust are pursuing the same goals, in a mutually supportive manner. We have not inquired into the
AI Trust or its activities.
TWOA and the AI Trust have a close business relationship, which covers many different transactions. In 2001 TWOA lent
the AI Trust $3.1 million, to help with the purchase of the Porirua campus, without any written advice or assessment.
The loan and its terms were not recorded in writing until more than 2 years later. TWOA leases many significant
properties from the AI Trust. Most of these leases expired at the end of 2004 and have not yet been renewed, so are
running on informally. TWOA has constructed some large buildings on land it leases from the AI Trust. The AI Trust
operates the hotel business at TWOA’s Glenview hotel complex without any formal lease or other contract in place. A
significant potential intellectual property claim against TWOA by the AI Trust has also been considered.
We are concerned about the close relationship between TWOA and the AI Trust. Many business transactions between them
showed poor decision-making practices and pervasive conflicts of interest.
For much of TWOA’s history, most of its Council members were also trustees of the AI Trust (and the other way around).
Many transactions have involved individuals “wearing more than one hat”. In our view, these transactions could not have
been negotiated on a commercial or transparent basis. We think that the relationship also causes an unhealthy dependency
on the AI Trust, and could leave TWOA in a vulnerable position should the relationship between the entities deteriorate
or end. This creates significant risks for TWOA and its stakeholders.
Our expectations
We expect public funds and assets to be used responsibly, and public officials to perform their duties conscientiously
and competently.
The AI Trust, which provided the body of people established as TWOA, was a small private organisation. Many of TWOA’s
senior personnel trace their involvement back to the AI Trust. However, TWOA was established as a wânanga in 1993. From
that time, TWOA needed to meet the governance and management expectations that apply to all public entities. Instead,
the people governing and managing TWOA continued to act as if TWOA were a small private organisation.
TWOA has undergone significant and rapid growth in the last 5 years. It has had to swiftly change from a small
organisation to a large and complex one managing significant public funds. That rate of change has contributed to many
of the problems that we have identified. TWOA has lacked the organisational infrastructure, skill, and readiness to
manage itself as a large public sector entity. There were some changes to TWOA’s management processes and systems, but
they did not keep pace with the extent and speed of TWOA’s growth.
TWOA’s Council had primary responsibility for properly governing TWOA. The Council ought to have been aware of the
expectations that apply to public entities. There may have been a lack of useful guidance in this area at the time TWOA
was established, but this has not been the case for some time now. The Council has not ensured that TWOA’s governance
and organisational arrangements were fit to meet public sector expectations.
Recurring themes in our findings
Three themes were common to many of the activities that we looked at:
poor decision-making practices for significant expenditure;
inadequate identification and management of conflicts of interest; and
unacceptable practices in senior management expenses concerning international travel and credit card expenses.
Decision-making practices for significant expenditure
TWOA’s approach to making significant decisions was often informal and oral. Major acquisitions were not part of a
formal strategy, and major proposals were not always thoroughly analysed. We acknowledge that TWOA was growing rapidly,
and sometimes it had to make decisions quickly. But selection methods for contractors were often non-competitive. The
documentation of analyses, decisions, and contracts was often poor, and records were not always well organised.
We were told that business cases always existed, but that they were usually oral. The policies and procedures that we
expected to see to guide analysis and decision-making were not in place.
The lack of rigour in assessment and decision-making created an environment where projects were managed informally.
There was little control over some projects’ direction and costs, and little quality assurance or formal accountability.
In our view, the problems and cost over-runs that occurred might have been avoided if thorough business cases had been
prepared and carefully assessed before starting the projects.
For example, in 2003 TWOA bought the Glenview hotel complex in Hamilton, because TWOA needed a site for a library. In
our view, the business case for the purchase and subsequent renovation project was not robust. The costs significantly
over-ran estimates, and TWOA has spent at least $14.4 million on a complex recently valued at $10 million.
Conflicts of interest
We found many examples of conflicts of interest, which were poorly managed. It was common to find TWOA contracting with,
or employing, relatives of senior personnel (or those relatives’ companies).
TWOA has relied heavily on personal connections, and works with people who are known to, and trusted by, the
organisation. In our view, business relationships were not always managed in a transparent manner. This is not
acceptable in the public sector.
Conflicts of interest increase the need for transparent and robust decision-making. This often did not occur at TWOA. In
our view, many people in TWOA poorly understood conflicts of interest and their significance.
In this report, most of the conflicts of interest that we discuss involve Rongo Wetere or members of his whânau. For
example, we identified 17 close relatives of Rongo Wetere who have – or have had – employment or contracting connections
with TWOA. Frequent and extensive conflicts of interest also existed with educational courses and contracts for goods
and services.
A conflicts of interest register existed from late 2003. It recorded some, but by no means all, of Rongo Wetere’s whânau
connections and related entities. However, declaring a conflict of interest, with nothing more, is not usually enough.
Nor is asking someone else to sign a contract a sufficient mitigation measure when the conflicted person has been
instrumental behind the scenes anyway.
Several members of Rongo Wetere’s whânau have held senior positions in TWOA (and its subsidiary). This is unwise. There
is potential for a lack of independence and rigour in decision-making when several members of one family hold senior
positions in an organisation.
Senior management expenses – international travel by TWOA personnel
Overall, international travel was poorly documented and poorly accounted for. The completeness and quality of the cost
information and documentation that TWOA supplied to us was deficient in several respects.
In our view, there were legitimate business purposes for Rongo Wetere’s trips (with one exception). However, documented
business cases, trip budgets, and written pre-approvals did not usually exist for his travel.
On separate trips to Cuba, Rongo Wetere made, on behalf of TWOA, cash donations to officials representing 2 Cuban
agencies. In our view, a public entity should not give donations in cash to foreign officials. This practice is
unacceptable.
TWOA established a credit card policy in October 2003. Rongo Wetere did not comply with TWOA’s credit card policy after
it came into effect.
There were transactions charged to Rongo Wetere’s business credit card that appeared private in nature. We note that
some money has been repaid to TWOA.
In the 3 years we examined, Rongo Wetere withdrew about $42,000 in cash using his business credit card. Almost all of
these transactions occurred during 4 trips to Cuba. Rongo Wetere told us that, because of restrictions the United States
of America has imposed on many banks, trying to do business with TWOA’s credit card while he was in Cuba was difficult.
We could infer a business use for most of the cash, but the documentation was poor. Also, we could not reconcile all
explanations with the amounts of cash that had been withdrawn.
In our view, some amounts should be refunded by (and perhaps to) Rongo Wetere. However, because of the lack of
documentation, we doubt whether it will be possible to determine with any certainty the amounts that may be owed by or
to TWOA. This is an unacceptable situation.
ENDS