Part 3: Operation of the Visiting Investor Programme

• How visiting investors became involved
• Hosting the visiting investors
• Discretionary expenditure for visits
• How the visits were monitored

3.1
In this Part, we discuss how potential visiting investors were identified, selected and assessed. We also describe the activities of the investors, and the expenditure for visits under the VIP.

How visiting investors became involved

3.2
The Commerce Committee of the House of Representatives, in its 2004 financial review of Industry New Zealand, noted that–

Candidates for visits are assessed from a list that is generated from both proactive, research-based targeting of businesses/individuals by Investment New Zealand and in response to parties that may approach Investment New Zealand with an interest in exploring investment. Visitors will typically be business owners and decision-makers and/or their trusted advisors.⁷

3.3
If an interested investor approached Investment New Zealand, he or she would be assigned an Investment Manager. The Investment Manager would work with the investor to determine whether the VIP was appropriate.

3.4
When the VIP was established, visiting investors were expected to be the Chairpersons or Chief Executives of pre-qualified companies. From 1 July 2004, the VIP was expanded to include technical and advisory personnel.

3.5
In the files we examined, visiting investors were identified in a range of countries and regions, and usually came from Australia, Europe, or North America. There had often been contact between the visiting investor and staff in NZTE’s offshore offices.

How Investment New Zealand identified and selected potential investors

3.6
We expected there to be a standard process for all visiting investors brought to New Zealand. Once potential visiting investors had been identified, we expected that a designated decision-maker or decision-makers would consider:

• information about the proposed visiting investor;
• information about the company the visiting investor was representing;
• information about the visiting investor’s areas of interest in New Zealand, and whether New Zealand’s investment interests were complementary;
• an assessment of the likely prospects of investment in New Zealand;
• information about the proposed timing and programme for the visit; and
• a budget.

Selection process from 1 July 2002 to 30 June 2003

3.7
From 1 July 2002 to 30 June 2003, when Investment New Zealand was part of Industry New Zealand, there was no standard selection process to bring visiting investors to New Zealand. In the files we examined, it was often unclear why a visiting investor had been brought to New Zealand, and what the likely prospects were of future investment in New Zealand. There were no budgets on file for any of the investors brought to New Zealand during this time.

3.8
The lack of transparency around why visiting investors were brought to New Zealand, and the lack of a clearly defined process, was poor practice.

Selection process from 1 July 2003

3.9
From 1 July 2003, the preparatory work of Investment Managers to identify potential investors culminated in the submission of an “expenditure request” form to the Director New Zealand for approval.

3.10
This form required Investment Managers to provide:

• the name and position of the client;
• background information on the company;
• a description of the client’s investment interest in New Zealand;
• the client’s proposed programme; and
• anticipated costs.

3.11
The form was used for 15 of the 18 visits from 1 July 2003. The information provided in the form was often brief, and sometimes incomplete, and did not explicitly assess the likelihood of the company investing in New Zealand.

3.12
Investment New Zealand told us that this form was required to be completed before an invitation to the visiting investor was issued. Only 6 of the expenditure request forms for the 2003-04 year were dated, and 2 of the trips were approved after the visit had been scheduled to begin.

How Investment New Zealand assessed potential investors

3.13
We expected that there would be a standard assessment process to determine whether a potential investor should be brought to New Zealand under the VIP.

3.14
As set out in Appendix 1, Investment New Zealand has stated that–

An invitation is only offered after analysis of potential investor interests and qualification over whether New Zealand is able to provide suitable opportunities to meet those interests.

Discussions with the offshore company/investor need to ascertain the seriousness of the investors’ consideration of New Zealand as a location. VIP should not be offered unless New Zealand is on a short list of potential locations, either for establishing a part of the value chain here, or for investment.

As these factors are complex and layered, these are not hard-and-fast rules. There is a high reliance on the in-market representatives’ investment-related expertise and most importantly their understanding and dialogue with the investor and the dialogue with the appropriate Investment New Zealand sector manager in New Zealand and the Director New Zealand, Investment New Zealand who must approve all VIP trips.

Conversely, the potential investor will be making their decision as to whether to come to New Zealand for such a visit. This will be built up through the same dialogue and the provision of information on relevant investment opportunities that relate to their interests.

Assessment process from 1 July 2002 to 30 June 2003

3.15
From 1 July 2002 to 30 June 2003, there was no standard process for assessing and approving visits by potential investors. We found no evidence at all of assessments or approvals – some files merely contained an itinerary indicating that a visiting investor had been brought to New Zealand.

Assessment process from 1 July 2003

3.16
With the introduction of the expenditure request form, all forms were required to be assessed and authorised by the Director New Zealand. All 15 expenditure request forms that we sighted were signed by the Director New Zealand.

3.17
We expected there to be a clearly defined decision-making process, including a set of guidelines upon which the Director New Zealand would base his decisions. Further, we expected that there would be clear documentation setting out the rationale behind the decisions. We found neither.

Were the selection and assessment procedures satisfactory?

3.18
From 1 July 2002 to 30 June 2003, the selection and assessment procedures were unsatisfactory. There was neither documentation setting out the rationale for bringing a visiting investor to New Zealand, nor any form of approval process.

3.19
Investment New Zealand’s selection procedures improved significantly from 1 July 2003, with the introduction of an expenditure request form. The form required Investment Managers to provide basic information about the visiting investor and the purpose of his or her visit. However, the brevity of the information in the forms concerned us.

3.20
In addition, we expected assessments to be made against appropriate guidelines to ensure that the rationale behind the decision to bring the visiting investor to New Zealand was both clear and transparent, and in accordance with the objectives of the VIP. We did not see any evidence of this.

Hosting the visiting investors

Organisation of the visit

3.21
Once a visiting investor had been invited to New Zealand, an itinerary was agreed with the investor. The preparation of the schedule and the logistical arrangements were often outsourced to a programme co-ordinator.

3.22
The responsibilities of the programme co-ordinator generally included:

• building a personal preference profile in consultation with the visitor – for example, dietary requirements or leisure preferences;
• booking accommodation and travel;
• in some instances, meeting the visitor at the airport and escorting the visitor to his or her accommodation;
• arranging meetings;
• preparing a schedule for the visit; and
• making any changes to bookings and meetings, if required, during the visit.

3.23
An Investment New Zealand manager was responsible for ensuring that a formal programme was prepared in consultation with all parties. This included the visiting investor, offshore representatives who had been working with the investor, the organisations and Ministers who would be visited, and the programme co-ordinator.

Activities undertaken during the visit

3.24
In the files we examined, the length of visits varied greatly, from a single day of meetings through to several days or even a week. The longest visit we examined lasted 9 days.

3.25
The size of groups brought to New Zealand under the VIP also varied. Sometimes visiting investors came on their own, sometimes in groups of 2 or 3, and in one instance there were 6 people in the group. On at least 3 occasions, there was more than one visit under the VIP by the same investors, or by representatives from the same companies.

3.26
The visiting investors predominantly spent their time in meetings with decision-makers in local businesses, central and local government bodies, and on some occasions, they met with senior representatives of service agencies (such as law firms and commercial real estate agents).

3.27
Of the 41 visits we examined, 25 included recreational activities. In 4 of the visits, the potential investors spent 2 days in organised recreational activities. The recreational time for the remainder of the visitors ranged from half a day to one and a half days. Recreational activities included sightseeing, yachting on Auckland Harbour, and playing golf. On some occasions, visiting investors had opted for free days where no activities had been arranged on their behalf.

Discretionary expenditure for visits

3.28
A 1996 publication produced by The Institute of Internal Auditors NZ Inc⁸ clearly sets out the principles that should be applied to the approval of discretionary expenditure. In particular, it notes that there are 4 tests to apply when considering the approval of discretionary or sensitive expenditure:

1. Does the expenditure support the goals of the organisation?
2. Could the organisation confidently justify this expenditure to a taxpayer, shareholder or other interested party?
3. Would publicity adversely affect the organisation?
4. Does the frequency or significance of the activity warrant the development of a specific policy?

3.29
In another of our inquiries, Certain Matters Arising from Allegations of Impropriety at Transend Worldwide Limited,⁹ we stated that expenditure should comply with appropriate policies and be prudent, sensible, and demonstrably for business purposes.

3.30
Investment New Zealand had established no guidance on acceptable levels or appropriate types of expenditure under this Programme.

Discretionary expenses incurred by the visiting investors

3.31
In February 2004, the Ministry of Economic Development (MED) and the Ministry of Foreign Affairs and Trade (MFAT) conducted a review of Investment New Zealand (Evaluation of the Implementation of Investment New Zealand) and noted–

All costs are expected to be ‘reasonable’, but in line with the ‘red carpet’ nature of the programme. Accommodation is therefore likely to be in suites rather than ordinary rooms and restaurant meals may be at the top end. The form of assistance provided is however dependent on the potential investor, and could therefore include coverage of all domestic costs as opposed to international travel or other selected costs.

3.32
Expenditure incurred under the VIP was mainly for international flights, accommodation, meals, and transport within New Zealand. For some visiting investors, Investment New Zealand paid only for costs incurred while the investor was in New Zealand. In other cases, Investment New Zealand covered all costs associated with the visit, including international airfares.

3.33
In the files we examined, expenditure for visits during the 2002-03 financial year ranged from $1,194 to $40,850. In the 2003-04 year, expenditure for the visits ranged from $470 to $27,352. Examples of specific items of expenditure included:

• $185 for a night’s accommodation at the Stamford Plaza in Auckland;
• $349 for 5 people to have dinner at the Kermadec Ocean Fresh Restaurant;
• $260 for the hire of golf clubs, green fees, and lunch at the Gulf Harbour Country Club; and
• $2,617 for two people to stay at the Tongariro Lodge for 2 nights, including all meals, transfers to and from Taupo, and a fishing licence.

3.34
The VIP exists to enable international investors to visit and explore investment opportunities as guests of the Government. We would therefore expect the expenditure incurred on travel, accommodation, and entertainment under the VIP to be of a higher standard than that usually considered appropriate when purchased with public funds.

3.35
However, the nature and level of expenditure in each case should be tailored to the visitor in question, and the nature and size of the potential investment. We expected there to be:

• policies governing what types and levels of expenditure were appropriate for visitors under the VIP, and procedures for applying that guidance when preparing itineraries for specific visits;
• documentation of the purpose of each visit, the desired investment outcomes, the approved itinerary designed to address those objectives, the types and levels of expenditure on travel, accommodation, meetings, and entertainment; and
• approval by the relevant authority of all expenditure before it was paid or reimbursed, and given on the basis of supporting documentation clearly linking the expenditure to the purpose of the visit.

3.36
We were provided with invoices or receipts for all of the expenditure identified by Investment New Zealand as incurred under the VIP in the 2002-03 and 2003-04 financial years. However, invoices had insufficient information for 11 out of 23 visits in 2002-03, and for 9 out of 18 visits in 2003-04. For example, some of the costs incurred were paid by a third party, such as a travel agent, and then charged to NZTE without the original invoice. It was impossible to ascertain the purpose of the original spending, or whether it was consistent with the purpose of the visit.

3.37
This was particularly problematic for visits in the 2002-03 financial year. The documentation that year was not sufficient to enable us to ascertain the purpose and appropriateness of each visit and, hence, the purpose and appropriateness of specific expenditure items.

3.38
The introduction of the expenditure request form in 2003-04 year, after Investment New Zealand had been merged into NZTE, led to a distinct improvement in the standard of documentation and made it easier for us to form a judgement about the purpose of specific expenditure items.

3.39
For those visits where the supporting documentation was clear, and allowed us to determine what the expenditure was for, the expenditure we saw was appropriate, given the nature of the VIP and the standing of the visitors involved. However, we were not able to form any such judgement for other visits because of a lack of adequate documentation.

3.40
It was standard practice for Investment New Zealand officials to accompany visiting investors within New Zealand. Some expenditure incurred by officials, such as for meals, was of a higher standard than we would usually consider appropriate when purchased with public funds. Because of the lack of adequate documentation for some of the visits, we were unable to determine the appropriateness of the officials’ expenditure. During the preparation of itineraries for the visiting investor, Investment New Zealand should have guidelines on, and consider, appropriate expenditure for officials.

How the visits were monitored

3.41
We expected Investment New Zealand to have effectively monitored the visits, recorded what occurred during the visit, and identified any follow-up actions that would further encourage or support the potential investor. We also expected to find an assessment, based on the meetings and other activities that took place during the visit, of the visitor’s likelihood of investing in New Zealand.

3.42
An Investment Manager accompanied the visiting investor to all meetings, and at the end of the visit was required to complete a report about what happened.

3.43
For the visits examined between 1 July 2002 and 30 June 2003, when Investment New Zealand was part of Industry New Zealand, only 4 of the 23 files described what had occurred at the meetings and the outcomes of the visit.

3.44
For the visits examined between 1 July 2003 and 30 June 2004, 14 of the 18 files contained information describing what had occurred during the visit.

7: Report of the Commerce Committee (2004), 2002/03 Financial review of Industry New Zealand, House of Representatives, Wellington.

8: The Institute of Internal Auditors NZ Inc (1996), A Management Guide to Discretionary Expenditure: An Aid to Corporate Governance for Chief Executives, Managers, Directors, Audit Committee Members and Internal Auditors, ISBN 0-9583507-0-1.

9: Report of the Controller and Auditor-General (2002), ISBN 0-478-18103-5, page 59.