Part 2: Introduction

• Why did we consider an inquiry to be necessary?
• What we did
• The structure of this report

2.1
Each financial year the Ministry of Education (the Ministry) receives funds through Vote: Education for Māori and Pacific Island scholarships. The funding supports 4 different scholarship schemes:

• Māori and Polynesian Scholarships for Higher Education;
• Ngārimu VC and 28th (Māori) Battalion Memorial Scholarship Fund;
• Manaaki Tauira; and
• Māori Education Trust scholarships.

2.2
The Ministry has 2 contracts with the Māori Education Trust (the Trust). One contract is for the administration of Manaaki Tauira scholarships. The second contract is for administering the remaining 3 scholarship schemes. For clarity in this report, the contracts are referred to as the ‘Manaaki Tauira contract’ and the ‘scholarships contract’.

2.3
The Trust receives scholarship applications and processes payments in instalments to recipients of the scholarships. The Trust determines the recipients of its own scholarships, and recommends eligible students for the other scholarships. The Trust has been providing this service on behalf of the Ministry since 1993-94 for the scholarships contract, and since 2002 for the Manaaki Tauira contract.

2.4
In recent years these scholarship schemes have focused on tertiary education. As part of the tertiary education reform process, the Ministry decided to transfer responsibility for management of the Crown’s relationship with the Trust from the Ministry to the Tertiary Education Commission (the Commission).

2.5
During 2003, in anticipation of the transfer of the 2 contracts, Commission officials reviewed paper-based records maintained by the Ministry. They also held a number of meetings with the General Manager of the Trust and relevant Ministry officials. Concerns raised by the Tertiary Education Commission

2.6
During their review, Commission staff became concerned about:

• the completeness and accuracy of milestone reports submitted by the Trust;
• the Ministry making contract payments in the absence of milestone reports;
• the legitimacy of payments made under the Crown subsidy arrangement for the Trust’s own scholarships;
• whether the Ministry had funded the Trust in accordance with appropriations and contractual requirements; and
• whether the Ministry had ensured that the Trust had applied the funding to the purpose for which it was provided.

2.7
The General Manager of the Commission raised these concerns formally with the Secretary for Education.

2.8
The Secretary for Education discussed them with his senior managers responsible for the relationship with the Trust, and the Ministry’s Chief Internal Auditor. The concerns raised in relation to the Ministry and the Trust were serious. To ensure an independent investigation, the Secretary for Education, in February 2004, asked the Auditor-General to consider undertaking an inquiry.

2.9
The Ministry of Education has advised us that the transfer of the contracts will be completed following the release of this report and the resolution of the issues we have identified.

Why did we consider an inquiry to be necessary?

2.10
We agreed that the concerns raised by the Commission warranted an inquiry. The funds involved are significant too – the Ministry, through Vote Education: Benefits and Unrequited Expenses, was allocated $5,544,000 in the 2003-04 financial year for scholarships administered by the Trust. Mandate for the inquiry

2.11
This inquiry was carried out under the authority of section 16 and section 18 of the Public Audit Act 2001 (the Act).

2.12
The Ministry and the Commission are public entities under the Act, as is the Ngārimu VC and 28th (Māori) Battalion Memorial Scholarship Fund (administered by the Trust under the scholarships contract).

2.13
The Trust, while audited by the Auditor-General (by arrangement under section 19 of the Act), is not a public entity.¹

What we did

2.14
Following the terms of reference² for our inquiry, we:

1. examined the role of the Ministry, and its oversight of the scholarship programmes, including the internal control environment operating within the Trust;
2. identified the funding arrangements for the scholarship programmes, and determined their basis and purpose;
3. examined the process by which each funding arrangement was made and whether good practice was complied with;
4. determined whether funding had been applied in accordance with the relevant appropriations, statutory authority, or other requirements;
5. reviewed for each scholarship programme the appropriateness of the arrangements the Ministry had to monitor the implementation and performance of the programme and the effectiveness of that monitoring; and
6. identified for each scholarship programme whether the Trust had performed and/or complied with its obligations with respect to the award of scholarships in which the Crown has an interest.

2.15
Specifically, we:

• examined the processes used by the Trust during 2003–04 to administer the scholarships discussed in this report;
• closely examined a sample of scholarship applications from 2002-03;
• assessed the quality of milestone reporting under the scholarships contract from 1994-2003, and from 2002 for the Manaaki Tauira contract; and
• analysed the value of scholarships awarded under the Māori Education Trust scholarships scheme from 1994-2003.

2.16
We met with Commission officials and discussed their concerns. We reviewed the relevant documentation at the Ministry, the Commission, and the Trust. We also interviewed managers of the Ministry, the Commission, and the Trust.

2.17
Because the Trust is not a public entity in terms of the Public Audit Act 2001, our investigation of the Trust’s activities extended only to obtaining evidence about its controls for the handling of funding received from the Ministry.

2.18
While the concerns raised by the Commission were sufficiently serious to warrant this inquiry, the events leading to the Secretary for Education’s request that we conduct an inquiry were also of some concern. We have included our observations about this process in Part 10 of this report.

The structure of this report

2.19
We begin this report with a description of the relationship between the Ministry and the Trust. We then describe the administration and monitoring of each of the 4 types of scholarship schemes managed by the Trust under contract to the Ministry.

2.20
We discuss the control environment within the Trust, and then describe our findings in relation to the Ministry’s monitoring of its 2 contracts with the Trust.

2.21
We end this report with observations about the events leading to the Secretary for Education’s request that we conduct an inquiry.

1: The Trust’s predecessor, the Māori Education Foundation, was required by the Māori Education Foundation Act 1961 to be audited by the Auditor-General. When the Trust was formed in 1993, it could have appointed another auditor but requested instead that the Auditor-General continue in the role.

2: The terms of reference are reproduced as Appendix 1 to this report.