A report today from the Auditor-General sends a reminder that every public organisation must be able to show how and
when it has spent public money, to enable the public to have confidence in how their money is spent.
It also sends a message that public organisations are expected to recognise, and appropriately manage, any conflicts of
interest.
The inquiry looked into $450,000 in management fees that the Combined Establishment Board of South Auckland Middle School and
Middle School West Auckland paid to Villa Education Trust in 2018. These fees were for administration and management
services required for the former charter schools to open as designated character state schools.
The schools’ Appointed Auditor noted that the trustees of the Board were also the trustees of the Villa Education Trust.
“We found the members of the Establishment Board failed to recognise that a conflict of interest arose when they
effectively decided to pay money to themselves,” says Auditor-General John Ryan. “This meant the Board took no steps to
manage the conflict.
“The trustees were, effectively, wearing two hats,” Mr Ryan adds. “The shared membership was a potential conflict of
interest that became an actual conflict when the Establishment Board considered engaging Villa Education Trust.”
“In a situation like this, we expect a public organisation to recognise the conflict and put a process in place to
manage it.”
Mr Ryan also found that, while the Board had valid reasons to engage Villa Education Trust for the work, the Board did
not follow good procurement practice:
· There was no formal agreement between the Board and the Trust, and no scope of work before the $450,000 was invoiced
and approved for payment.
· There was no evidence to show how the Board determined what services it was paying for, assessed the appropriateness
of the fees, or actively managed the services that were delivered.There is no documentary record of who approved the expenditure as being valid or authorised the invoices for payment,
and whether they had the appropriate authority to do so.
From the time of the 2018 audit and throughout the inquiry, there also appears to have been a lack of appreciation by
the Establishment Board of the position it was in when it became a state school, or of the expectation when spending
public money to properly account for that money.
“The Establishment Board, like any public organisation, is accountable to the public and Parliament for how it has spent
the public money entrusted to it,” says Mr Ryan.
“The Board has been unable to provide us with sufficient assurance about the circumstances in which the fee was
determined and paid, and about what exactly has been provided in exchange. I expect more from a public organisation
spending public money.
“The circumstances of this payment create a perception of a lack of integrity. Acting with integrity, and being seen to
act with integrity, are fundamental to maintaining the public’s trust and confidence in public organisations and in the
public sector as a whole.”
When carrying out the 2018 audit, the schools’ Appointed Auditor had been unable to obtain sufficient, appropriate
evidence to determine how much of the payment was valid expenditure.
“Information about how the fees were determined, agreed, paid, and managed, and what was received for the payment,
should have been available to our auditor when asked for in the first instance. That information is part of orthodox
procurement and contract management and should be properly documented.
“If that information was prepared and made available, it might not have been necessary for us to carry out all the work
involved in this case to find out the circumstances of a payment like this.”
Mr Ryan encourages public organisations to read his Office’s good practice guide on managing conflicts of interest. This provides guidance on identifying and managing conflicts of interest, so the public can have confidence that people
making decisions and spending public money are doing so in the public interest.
We've published information on our website about our upcoming performance audit on the leadership of the housing and
urban development system. We will provide Parliament and the public with an independent view on how well placed the
Ministry is to lead the housing and urban development system, now and into the future. Read more.
Our Office has made a submission on the Local Government (Pecuniary Interests Register) Amendment Bill. You can read our submission on our website.
We’d like your feedback: Our website includes a feedback form. Please tell us if you found our information useful.
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